The purpose of DeFi (or decentralized finance) is to bring to life a permissionless, decentralized, and transparent financial ecosystem on top of blockchain networks. And the new wave of DeFi technologies is Flash Loans.
Flash Loans are special uncollateralized loans that allow the borrowing of an asset, as long as the borrowed amount (and a fee) is returned in one single transaction. This is the shift in the current Defi landscape which is built on overcollateralization of assets.
In the world of traditional finance, people obtain two types of loans – secured and unsecured. An unsecured loan simply means that the lender doesn’t require the borrower to put down any kind of collateral and is facilitated by credit history.
Defi has expanded the horizon of unsecured loans with flash loans, enabling the borrower to access loans without collaterals or credit score.
Flash Loan transactions is one transaction event made of three parts: receive loan, do something with loan, repay loan and fees. And all this happens with the magic of blockchain.
Arbitrage Take advantage of price disparity across different trading volumes.
Flash loans can be a great way to arbitrage between decentralized exchanges without providing initial liquidity. For example, if a user uses two DEXs, they are able to borrow an asset, swap it on exchange 1, and then commit a swap for exchange 2 for an arbitrage play, and repay the loan. Any amount left after repaying the loan is profit for the user.
Collateral Swap A collateral swap enables DeFi users to switch the collateral they’ve used to take out a loan on a multi-collateral lending app.
For example, suppose a trader has staked their ETH in Maker to create DAI. They can take out a flash loan in DAI to the same value as they’ve borrowed from Maker. They can then use the flash loan to repay their Maker loan, withdraw their ETH, and trade it for BAT on a DEX. They use the BAT to collateralize the creation of more DAI on Maker, which in turn repays the flash loan.
A self-liquidating loan is a type of short term loan whereby the funds borrowed are used to buy some asset, which is in turn sold at the loan's maturity to repay the loan.
For example, If users borrow DAI while using ETH as collateral and the price of ETH was crashing, the borrower would be in danger of having their loan liquidated. In this situation, the borrower could use a Flash Loan to swap their volatile ETH asset for a stable coin. The user’s collateral value would now be stable, and you would avoid all the penalties that come with being liquidated.
ADVANTAGE OF UNILEND FLASH LOAN
Vast Selection of Assets Unlike other flash loan providers who only give access to 20 to 30 assets, UniLend users will be able to take a flash loan using 6000+ assets on the market. With maintained liquidity, UniLend users will be able to utilize flash loans with any asset for new and unimagined use cases.
Furthermore, UniLend support innovative new token technologies such as elastic tokens and synthetic assets because of its permissionless nature. This means a much broader spectrum of use case for our community.
The Most Cost-Efficient Flash Loans on the Market Flash loans at Unilend are fine tuned to be the most cost efficient on the market. For example, UniLend’s flash loans are three times more gas efficient in comparison to Aave.
Read more on the recent test demonstrating how Aave users pay 278% more on transaction fees that they can using UniLend.
The flash loan fee is currently 0.05%
Users who provide liquidity to the flash loans liquidity pool via staking will receive their portion of 70% of the fees generated from the usage of our flash loans. These rewards will be distributed based on each user’s pool percentage. The other 30% of the fees will be used for other initiatives which benefit the UniLend community.
Flash loans will initially be available using UFT, before branching out to other assets. Our community will thus be able to stake their holdings of UFT to enable flash loans and earn an APR for staking UFT.
UniLend’s Automated Staking Rewards (ASR) pool is a brand new concept that calculates staking rewards per second, instead of every block, to maintain a more uniform reward distribution across multiple blockchains. This simplifies the staking rewards distribution process while creating the opportunity for anyone to contribute to the pool without any complexity.