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Flash Loans

What is a flash loan?

In a general sense, a flash loan is a transaction that allows anybody to borrow funds without collateral, provided that the borrowed amount is returned within the same transaction block. Flash loans are made possible by smart contracts on blockchain platforms, which allow the borrower to receive and repay the loan within the same transaction, thereby eliminating the need to supply their own collateral.

Flash loans are often used for arbitrage opportunities or other types of short-term trading strategies that require quick access to large amounts of funds. However, they carry a high level of risk to the borrower due to the short time frame in which they must be repaid and can only be utilized by skilled developers or traders..

What assets can be flash loaned?

The eBTC protocol provides the capability for flash loans on both eBTC and the stETH collateral in the system.

When a user flash borrows eBTC, the debt is minted, transferred to the user, and burned off upon repayment within the same block. The amount of debt that can be borrowed is limited to uint112.max (2^112 - 1) wei.

Similarly, stETH can also be flash borrowed. In this case, the requested amount is taken from the collateral pool contract, transferred to the user, and then returned to the pool once the loan is repaid. The amount of collateral that can be flash borrowed is limited by the amount held in the pool.

Users who wish to take out a flash loan will be required to pay a fee of 0.03% on the borrowed amount. This fee may be subject to future adjustments through the minimized governance.

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