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A flash loan is a particular kind of DeFi loan that may be bought, repaid, and processed quickly without the requirement for security. The Aave platform provides flash loans, a cutting-edge service made possible by the way data is stored on the Ethereum blockchain.
Since everything is handled synchronously, there is no time difference between borrowing and paying back the money. Flash loans must therefore be atomic composable because everything must either settle or fail simultaneously for them to work.
Since there is no counterparty or credit risk, collateral is not needed for flash loans. As a result of their high levels of leverage, flash loans are very capital-efficient. Only DeFi and not traditional financial markets can achieve this level of capital efficiency.
Flash loans are frequently funded through lending protocols like Aave or CREAM, which have the ability to connect with other decentralized applications (dApps) like Uniswap or Sushiswap by offering single-transaction loans as a feature.
Extra reading:
https://coinmarketcap.com/alexandria/glossary/flash-loan
https://chain.link/education-hub/flash-loans
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