MAKING 100X on Crypto Flash Loans. INSANE PROFITS.
Summary
TLDRThis video explores the concept of flash loans in cryptocurrency, illustrating how they allow users to borrow vast sums without collateral, solely within one transaction block. The host demonstrates practical applications, including arbitrage opportunities and leveraging flash loans for profit, while emphasizing the unique nature of this mechanism in the crypto world compared to traditional finance. Additionally, the video covers the use of Tornado Cash for anonymity, the potential for leveraging and shorting strategies, and the risks involved in such operations. The episode is sponsored by the Opera Crypto Browser, aimed at enhancing the Web3 browsing experience with integrated crypto wallet and privacy features.
Takeaways
- 😲 Flash loans allow you to borrow large sums of money without collateral as long as you pay it back within the same transaction
- 👌 You can use flash loans for arbitrage opportunities across decentralized exchanges
- 🤑 The video shows an example of making a small profit from an arbitrage between USDC and Frax using flash loans
- 😎 You can use flash loans to take leveraged positions, for example shorting FRAX in this case
- 🔁 Flash loans can be used to self-liquidate leveraged positions
- 🌪️ The video advocates using Tornado Cash to obscure transactions related to flash loans
- 🚨 Flash loans have been used to attack lending protocols by artificially inflating collateral
- 👀 Screen Finance appears to have been exploited via flash loans taking advantage of mispriced collateral
- ❗Flash loans are only possible due to the atomic nature of transactions in decentralized finance
- 🤷♂️ The video presenter seems overly enthusiastic about using flash loans in ethically questionable ways
Q & A
What are flash loans in the context of cryptocurrency?
-Flash loans are a unique concept in cryptocurrency that allow individuals to borrow any amount of money without collateral, with the condition that the loan must be repaid within the same transaction block.
How can flash loans be used for arbitrage opportunities?
-Flash loans can be used for arbitrage by borrowing funds to exploit price differences across exchanges. For example, buying an asset at a lower price on one exchange and selling it at a higher price on another, all within the same transaction block.
What is Tornado Cash, and why is it used in conjunction with flash loans?
-Tornado Cash is a cryptocurrency mixing service that obscures the origins of digital assets, making transactions untraceable. It's used with flash loans to obscure the trail of transactions for privacy or security reasons.
What is the main restriction when using flash loans?
-The main restriction of using flash loans is that the borrowed amount must be repaid within the same transaction block, meaning all operations financed by the loan must be completed instantly within that block.
Can you give an example of a flash loan used for arbitrage?
-An example of arbitrage using flash loans is trading 2,000 USDC for 2,002 FRAX, then exchanging those 2,002 FRAX back into USDC at another exchange, potentially making a profit from the price discrepancy.
What is the role of the Aave lending protocol in flash loans?
-The Aave lending protocol allows users to borrow assets through flash loans, facilitating transactions without requiring collateral, as long as the borrowed asset is returned by the end of the transaction.
What are the fees associated with taking a flash loan from Aave?
-Aave charges a flash loan fee of about 0.09%, which is relatively low, for facilitating the loan transaction without requiring collateral.
How can flash loans be used beyond arbitrage?
-Beyond arbitrage, flash loans can be used for purposes like leveraging up borrowing collateral, shorting assets with high leverage, or unwinding positions in a highly leveraged trade.
How does leveraging work with flash loans?
-Leveraging with flash loans involves borrowing funds to increase the amount of an asset one can trade, thereby amplifying potential profits (or losses). Flash loans can provide high leverage due to their no-collateral nature.
What is the potential risk of using flash loans for manipulating lending protocols?
-Using flash loans to manipulate lending protocols, such as by artificially inflating collateral values, can lead to insolvency for the protocols and loss of funds for users, highlighting the risk of malicious use of flash loans.
Outlines
😊 Introducing Flash Loans for Profitable Arbitrage
The video introduces the concept of flash loans, which allow temporarily borrowing large sums of money without collateral to take advantage of arbitrage opportunities and make profits. An example arbitrage opportunity is shown between USDC and FRAX stablecoins on different exchanges. The Furu Combo tool is demonstrated to execute a sample flash loan arbitrage trade.
🤑 Using Flash Loans to Short FRAX with Leverage
The video explores using flash loans to open leveraged short positions on assets, with the goal of profiting if the asset drops in value. A detailed example is shown for shorting FRAX stablecoin with 5x leverage using a flash loan from Aave, obscuring the transaction trail with Tornado Cash. Self-liquidation of the position using another flash loan is also discussed.
😲 Flash Loans Used to Drain Collateral from Scream Finance
The video explains how flash loans have been used to attack and drain collateral from decentralized finance protocols like Scream Finance. Attackers can exploit incorrect asset price data or gaps in the system to borrow more assets than they supply as collateral, leaving the protocol insolvent.
Mindmap
Keywords
💡Flash Loans
💡Arbitrage
💡Tornado Cash
💡Aave
💡Furucombo
💡Opera Crypto Browser
💡Collateral
💡Stablecoins
💡Leverage
💡Decentralized Finance (DeFi)
Highlights
Introduction to flash loans and their potential for arbitrage opportunities.
Explanation of flash loans as a unique cryptocurrency concept allowing borrowing of large sums with zero collateral.
Discussion on using Tornado Cash for obscuring transaction trails.
Introduction of the Opera Crypto Browser and its features tailored for Web3.
Example of a small arbitrage opportunity between USDC and FRAX stablecoins.
Using Aave lending protocol for borrowing assets for flash loans.
Furucombo as a tool to automate flash loan transactions.
Practical demonstration of executing a flash loan transaction for arbitrage.
Realization of transaction fees offsetting small arbitrage profits.
Exploration of flash loans for more than just arbitrage, like collateral leveraging.
Strategy for shorting FRAX stablecoin using flash loans for high leverage.
Using Tornado Cash for anonymizing transactions in the context of flash loans.
Demonstration of leveraging and shorting strategies using flash loans and Tornado Cash.
Discussion on the potential for protocol insolvency due to mispriced collateral in flash loan attacks.
Conclusion and call to action for viewers, emphasizing the innovative nature of flash loans.
Transcripts
all right welcome back let's make some
money you guys today we're talking about
flash loans and we're going to actually
perform a few flash loans attack out
there to arbitrage some nice
opportunities for us we're going to be
flash loaning hundreds of millions of
dollars actually it's gonna be a little
less than that but flash loans can be
used not only for profit but also for
fun and a variety of other purposes so
we're going to explore the whole world
of how flash loans work today and we're
going to do what the hackers do as well
we'll be using tornado cash just to
obscure our trails and so with our flash
loans anyway they are a unique concept
in cryptocurrency where you can borrow
essentially hundreds of millions of
dollars as much money as you want
providing zero collateral and the
restriction is you just have to complete
your transactions in one block so you
can borrow as much as you want just pay
it back right away after you do what you
need to do with that in one complete
transaction so you can do a series of
steps together and the whole block will
execute or revert all in one therefore
you can say that flash loans are a
concept truly unique to cryptocurrency
and blockchain technology that is simply
not possible in traditional finance
providing you with almost unlimited
leverage it's gonna be a fun and
exciting episode let's get into it quick
pause this video is brought to you by
the opera crypto browser a new web 3
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alright so to begin let's pretend that
you've spotted an arbitrage opportunity
where you can buy one asset for lower
price and then sell it for a higher
price right so if you had a lot of money
you can just keep buying this low price
asset and keep selling it and make a lot
of money that way a flash loan would be
great for this so for example here's one
such opportunity it's a small one two
stable coins usdc and frax both value
that one dollar but here you can see i
can trade 2 000 usd coins for 2002 frax
and then i can go to another exchange
like curve and trade those 2002 fracks
back into usd coins and i would have had
1.84 cents at the end of this trade
that's a small arbitrage opportunity now
if i can only do this trade at large
scale with say 10 million dollars of
funds then this can amount to quite a
bit of money and so how do we do a flash
loan well we need to find where we can
borrow a lot of these assets one such
website is going to be ave lending
protocol we can come in here and you can
just choose the number of assets that
you'd like to borrow and so for example
you can see you can borrow usdc coins
and if you go to the iv documentation
they're going to tell you that you can
actually do flash loans and just borrow
as much as you like almost infinite and
so they say flash loans are special
transactions that allow the borrowing of
an asset as long as the borrowed asset
is returned before the end of the
transaction these transactions do not
require the user to supply collateral
prior to engaging the transaction and
there is no real world analogy to flash
loans the only catch is ave will charge
you a flash loan fee of about 0.09 which
is fairly low and they actually tell you
a number of different tools and websites
you can use to help you automate this
flash loan process and so i was checking
these out one such website is furu combo
now there's a number of others but today
we're going to be checking out how to
use furu combo so if you go to
photocombo i believe it's free to use
which is pretty cool but you just need
to assemble these blocks together about
the types of transactions that you want
to do so the first thing we're going to
do is do a flash loan on usdc alright so
we'll borrow maybe five thousand dollars
worth so we'll say that's the first
block and then we need to put in here
another transaction to use an exchange
say one inch to do the swap right so
we'll swap from usdc into frax so let's
put that in
set that and then we want to also use
another exchange here curve finance to
swap that fax back into usdc
so we just set that block and then move
it right back up there
so these arbitrage opportunities are
always changing around i had to tune
these parameters a little bit but i
switched the token pair to usdc versus
die and then i executed the transaction
and we can take a look at what happened
here actually so as you can see here
this was a batch execution where i
swapped the 50 usdc for 50.1 dies so i
made 10 cents on this transaction and so
you can see it just executed the series
of transactions here where it took a
flash loan from ave for 50 usdc did a
bunch of stuff with this opted to die
and back and then repaid that flash loan
at the end of the transaction
the transaction fee was 42 so i lost 40
bucks on this but you know this supports
a number of other chains as well like
they've got polygon as well so maybe you
can trade on that if you're not doing
the bigger trades here now it turns out
flash loans are good for more than just
trade arbitrage you can do a bunch of
interesting things with it for example
you can use it to leverage up your
borrowing collateral so for example let
me show you what i'm trying to do here
now one trade that i've been trying to
do is to short frank stablecoin because
i just personally believe that frax is
going to collapse into a death spiral
similar to usd and tara because you know
frax is also algorithmically backed and
i believe that their collateral is
basically underwater at this point so in
order to short facts anyways what you
can do is you can supply something like
usdz coin borrow frags and then swap
that back into usdc coin and then later
on if and when frax collapses you can
repay it back at the price much lower
than when you bother that now flash
loans can help us accomplish this with
much higher leverage so for example
let's say i have 1000 usdc i'm only able
to borrow maybe 800 dollars worth of
frax it has to be less than what i've
supplied but the thing is with flash
loans i can actually take out 5x to 10x
leverage on my money because ava only
requires the collateral ratio to be
about 10 or so which means you can get
like 5 to 10 x leverage on this so let
me show you how i'm going to do this and
this time we're going to do it the pro
way by using tornado cache in order to
just obscure our tracks when we do a
flash load just like how the pros do it
so let me show you how this is going to
be done the first thing is we create a
new metamask account so i create a new
account here and i need to fund it using
new funds that are untraceable and this
is where tornado cash comes in so
tornado cash is this mixing service and
when we take out our short position on
frax maybe we just want to cover our
tracks here so the way this works is
we're going to deposit one each and then
we'll be able to withdraw it with this
other address all right so i will
deposit 1 8 and i'm going to back up
this note and send the deposit and you
guys this is costing me so much in gas
features to show you how to do this so
like and subscribe it but now we're
going to copy the note put in the
recipient address and withdraw that eth
back out and when i click on this it's
going to do that with a small fee taken
out for the gas feeds and now in my new
wallet you will see i have one ether in
there just transferred in from tornado
cache now what we're going to do now is
we're going to create a new photo combo
in which we're going to do another flash
alone here this time in order to acquire
a more leveraged short position on frags
so let me show you how this is going to
be done so we're going to borrow about
ten thousand dollars worth of ethereum
or five each and we're going to supply
that as collateral into ave so we'll
come here to ave deposit and we'll
deposit all of the ether in there
let me just move that here
so i need to unwrap the eat deposit that
into ave then we'll borrow maybe eighty
percent against our collateral so eight
thousand dollars worth of frags and then
finally we need to swap the frax back
into ethereum in order to pay back the
flash loan so we can see at the end what
this is going to do is it's going to
cause uh some ethereum in order to take
on this position about one ethereum and
we're going to receive some collateral
so let's execute that all right cool so
we've executed the transaction coming
into ave you can see what we have here
now is we have supplied five eth ten
thousand dollars worth of ether which we
don't have and we have borrowed eight
thousand frags so we have a short
position on frax now of eight thousand
dollars worth having used only one each
to take this position so it's about 4x
leverage and then finally the other cool
thing i found about flash loans is you
can use it to self-liquidate yourself in
order to unwind your positions right
like here i need to repay 8 000 worth of
frax which i don't have how can i unwind
this well i can also do another flash
loan here in which i can just borrow the
frags to do that and so same thing here
if i wanted to unwind this position i
could just borrow a thousand dollars
worth of frax as a flash loan repay the
loan withdraw the ethereum collateral
and then swap part of that back into
frax to repay the flash loan so there
you have it the flash loans definitely
an interesting financial construct and
some people have even used this to
pretty interesting effect like screen
finance is this other landing borrowing
protocol somebody i think probably could
have flash along this one too because
you can see they are overdrawn on their
collateral and supply and so for example
here what happened was they had
hard-coded the values of some of these
assets to one dollar like they stable
coin is valued at one dollar here on
screen but in reality day has already
packed to like 60 cents or so and so
what people do is they'll take a flash
loan get a bunch of day tokens supply it
in here and then borrow a bunch of
assets based on the assumption that the
collateral they deposited like for
example day there's 18 million dollars
worth of deposits is valued at one
dollar when it's not so they can borrow
a lot more than they've put in and then
they repay the flash loans having
borrowed more than the collateral that
they put in leaving the protocols
themselves insolvent and people unable
to withdraw the funds that they had lent
out but that's another issue and then
last of all on your way out before you
withdraw your funds just make sure to
tornado cash out that's how us pros do
it in any case that's flash loans for
you hope you enjoyed the video if you
liked the video please give a like and
subscribe and i'll see you in the next
one thanks bye
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