Flash loans in Blockchain / Solidity - Step-by-Step Execution

Concept Flow - Flash loans

Start Transaction

↓

Borrow funds instantly

↓

Use funds for arbitrage or swap

↓

Repay loan + fee within same transaction

↓

If repayment successful

→Transaction succeeds

↓

If repayment fails

→Transaction reverts, no loss

Flash loans borrow funds instantly within one transaction, use them, and repay immediately; if repayment fails, the whole transaction is canceled.

Execution Sample

Blockchain / Solidity

function executeFlashLoan() {
  borrow(amount);
  useFunds();
  repay(amount + fee);
}

This code borrows funds, uses them, and repays the loan plus fee all in one transaction.

Execution Table

Step	Action	State Change	Condition	Result
1	Start transaction	Transaction begins	N/A	Ready to borrow
2	Borrow funds	Balance += amount	Loan available	Funds received
3	Use funds	Perform arbitrage or swap	Funds borrowed	Potential profit
4	Repay loan + fee	Balance -= amount + fee	Sufficient funds	Loan repaid
5	Check repayment	Verify repayment	Repayment successful	Transaction succeeds
6	End transaction	Commit changes	All steps successful	State updated
Exit	If repayment fails	Revert all changes	Repayment failed	Transaction reverted, no loss

💡 Transaction reverts if loan plus fee is not repaid within the same transaction

Variable Tracker

Variable	Start	After Borrow	After Use	After Repay	Final
balance	initial	initial + amount	varies (profit/loss)	initial + profit - fee	updated or reverted

Key Moments - 3 Insights

Why does the transaction revert if the loan is not repaid?

Because flash loans require repayment within the same transaction; if repayment fails, the blockchain cancels all changes to prevent loss, as shown in the exit row of the execution_table.

Can you keep the borrowed funds after the transaction?

No, the borrowed funds plus fee must be repaid before the transaction ends, or else the entire transaction is reverted, ensuring no funds are lost or kept.

What happens if the useFunds step does not generate enough profit?

If the profit is insufficient to repay the loan plus fee, the repayment step fails, causing the transaction to revert as shown in the exit row of the execution_table.

Visual Quiz - 3 Questions

Look at the execution_table, what happens at step 4?

A Transaction ends successfully

B Borrow funds, increasing balance

C Repay loan plus fee, reducing balance

D Transaction reverts

💡 Hint

Check the 'Action' and 'Result' columns at step 4 in the execution_table

At which step does the transaction revert if repayment fails?

A Step 3

B Exit row

C Step 5

D Step 6

💡 Hint

Look for the row labeled 'Exit' in the execution_table

If the useFunds step generates no profit, what is the likely outcome?

A Transaction reverts due to failed repayment

B Transaction succeeds with profit

C Loan is repaid with fee easily

D Funds are kept without repayment

💡 Hint

Refer to the 'Use funds' and 'Repay loan + fee' steps in the execution_table and variable_tracker

Concept Snapshot

Flash loans let you borrow funds instantly within one transaction.
You must use and repay the loan plus fee before the transaction ends.
If repayment fails, the whole transaction reverts, so no loss occurs.
Common uses include arbitrage and swaps.
This ensures risk-free borrowing within a single blockchain transaction.

Full Transcript

Flash loans are a special kind of loan on the blockchain that lets you borrow money instantly but only within one transaction. The process starts by beginning a transaction, then borrowing the funds. You use these funds for something like arbitrage or swapping tokens. Before the transaction ends, you must repay the loan plus a small fee. If you do this successfully, the transaction completes and all changes are saved. But if you fail to repay, the blockchain cancels the entire transaction, so no one loses money. This makes flash loans a powerful tool for quick, risk-free borrowing and trading within a single transaction.