MAKING 100X on Crypto Flash Loans. INSANE PROFITS.

Summary

This 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

00:00

😊 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.

05:01

🤑 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.

10:01

😲 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.

Keywords

💡Flash Loans

Flash loans are a unique financial instrument in the cryptocurrency and blockchain space, allowing individuals to borrow any amount of funds without collateral, with the condition that the loan is repaid within the same transaction block. This concept, highlighted throughout the video, is central to exploring arbitrage opportunities and other financial strategies that are not possible in traditional finance due to the requirement of instant repayment. The video demonstrates how to execute flash loan transactions using platforms like Aave and leveraging tools like Furucombo for orchestrating complex trades.

💡Arbitrage

Arbitrage is the practice of taking advantage of price differences between markets. The video script discusses identifying opportunities to buy an asset at a lower price in one market and sell it at a higher price in another, using flash loans to amplify potential profits. Examples include trading between stablecoins USDC and FRAX to earn a profit from small price discrepancies across exchanges like Curve.

💡Tornado Cash

Tornado Cash is mentioned as a tool for obscuring the origins of cryptocurrency transactions to ensure privacy. In the context of the video, it is used after conducting flash loan operations to anonymize the proceeds. This emphasizes the importance of privacy in managing the digital assets accumulated from flash loan activities.

💡Aave

Aave is identified as a lending platform that supports flash loans, allowing users to borrow assets with the stipulation of repaying within one transaction block. The video illustrates how Aave can be utilized to initiate flash loans for arbitrage or other financial strategies, showcasing its role as a critical infrastructure provider in the decentralized finance (DeFi) ecosystem.

💡Furucombo

Furucombo is depicted as a tool that allows users to build and execute complex DeFi strategies, including flash loans, without needing to write code. The video explains how Furucombo can be used to assemble transactions involving borrowing, swapping, and repaying assets in a single operation, highlighting its utility in simplifying the execution of sophisticated financial maneuvers.

💡Opera Crypto Browser

The video features the Opera Crypto Browser, emphasizing its built-in non-custodial crypto wallet and support for multi-chain environments. It's presented as an innovation enhancing the web3 and crypto user experience, integrating privacy, security features like VPNs, and direct access to DeFi platforms and news, illustrating the evolving landscape of internet browsers catering to the needs of the crypto community.

💡Collateral

Collateral is discussed in the context of traditional loans and how flash loans diverge by not requiring it. This distinction underscores the novelty of flash loans within DeFi, allowing for leverage and financial operations that are unfeasible in conventional finance, where loans typically necessitate securing with assets.

💡Stablecoins

Stablecoins, such as USDC and FRAX, are used in the video's examples of arbitrage opportunities. Stablecoins are cryptocurrencies designed to minimize price volatility by being pegged to a stable asset, like the US dollar. The video illustrates how minor price differences between these stable assets can be exploited for profit through flash loans.

💡Leverage

Leverage in the context of the video refers to using borrowed funds to amplify potential returns from trading or investment strategies. Flash loans are presented as a means to achieve high leverage without upfront capital, enabling more significant positions than one's own capital would allow, particularly in strategies like shorting a cryptocurrency.

💡Decentralized Finance (DeFi)

Decentralized Finance, or DeFi, is a recurrent theme in the video, referring to the ecosystem of financial services, including lending, borrowing, and trading, built on blockchain technology that operates without central intermediaries. The video showcases how DeFi platforms like Aave and tools like Furucombo enable users to participate in complex financial transactions such as flash loans, highlighting the innovative and transformative potential of 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

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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