Flash Loan Arbitrage: Real-World Examples

 🔹 What Is Flash Loan Arbitrage?


A flash loan is an uncollateralized loan offered by DeFi protocols (like Aave, dYdX, or Uniswap) that must be borrowed and repaid within a single blockchain transaction.


Arbitrage happens when you exploit price differences for the same asset across different markets.

👉 Flash Loan Arbitrage = Borrow tokens instantly → buy low on one exchange → sell high on another → repay loan → keep profit.


⚡ How It Works (Step-by-Step)


Borrow 1,000 ETH via a flash loan.


On Exchange A, ETH = $1,900 → Buy tokens.


On Exchange B, ETH = $1,920 → Sell tokens.


Repay the loan (1,000 ETH + small fee).


Profit = Price difference × quantity traded.


📌 Real-World Examples of Flash Loan Arbitrage

1. bZx Protocol Exploit (2020)


Platform: bZx, a DeFi lending protocol.


What Happened:


A trader used a flash loan from dYdX.


Manipulated prices on Uniswap and Kyber.


Took advantage of the oracle price mismatch.


Result: The attacker made ~$350,000 in one transaction.


2. Harvest Finance Attack (2020)


Platform: Harvest Finance, a yield farming protocol.


What Happened:


Exploiter used flash loans to manipulate stablecoin prices (USDT and USDC) on Curve Finance.


Artificially moved prices to withdraw more than they deposited.


Result: The attacker drained ~$24 million.


3. Cream Finance Exploit (2021)


Platform: Cream Finance.


What Happened:


Flash loans were used to manipulate token prices and collateral values.


Exploiter borrowed far more than they should have.


Result: Loss of ~$130 million, one of the largest DeFi exploits.


4. Successful Arbitrage Without Exploit


Not all flash loans are hacks—some traders use them legitimately.


Example: A trader borrows $10M in DAI from Aave.


Buys ETH on Uniswap (lower price).


Sells ETH on Sushiswap (higher price).


Repays Aave within the same transaction.


Keeps risk-free profit of a few thousand dollars.


✅ Key Takeaways


Flash loan arbitrage can be profitable and legitimate if used to balance prices across exchanges.


Many exploits (bZx, Harvest, Cream) show the risks when protocols have weak oracles or liquidity imbalances.


The main idea: Use instant borrowed capital + price difference = profit (or exploit).

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