Flash loans have quickly become the talk of the town. With the recent exploits on Fulcrum and the looming potential to disrupt on-chain governance, flash loans have garnered a rather notorious reputation from the broader DeFi community.
However, flash loans hold incredible potential for the greater good. They democratize access by allowing any user to borrow as much capital available within a liquidity pool (without needing collateral) to execute any sort of transaction. The only contingency is that the loan must be borrowed and paid back within the same transaction. If it isn’t, the transaction fails.
Flash loans are an entirely new, crypto-native financial product. Their use cases are largely unexplored, leaving developers with rich opportunities ahead.
With that, DeFi Saver – a platform giving users with advanced control over Maker CDP (recently rebranded to Vault) exposure and debt – teamed up with Aave to release DeFi SAaver: 1-transaction Vault closings using flash loans.
We are happy to introduce 1-transaction CDP closing with flash loans!🎉🎉
More info in our post below.🗒️ https://t.co/IdC5TQie98
— DeFi Saver (@DeFiSaver) March 10, 2020
One transaction Vault closures (also known as self-liquidation) allow users to pay back all of their debt with the collateral contained within the Vault, effectively closing the debt position.
DeFi users can leverage this design as a stop-loss on their Vault, to prevent the need to continuously unwind a debt position during a bear market, or a way to close the position and collect profits in a bull run.
Traditionally, to close a Vault with a flash loan it can be a rather cumbersome process. Users are required to
- Initiate a Dai flash loan equal to the value of the Vault
- Payback the Dai Vault debt using the Dai
- Withdraw the collateral from the Vault
- Convert the value of the collateral into Dai for the flash loan debt
- Payback Dai flash loan debt
- Withdraw the remaining collateral as profit
Now, DeFi Saver’s new flash loan feature bundles all of these transactions into a single, seamless transaction for users. All you have to do is click a button and confirm the transaction on the DeFi Saver MakerDAO dashboard.
In total, the process includes a 0.25% DeFi Saver service fee, a 0.09% Aave flash loan fee and the Ethereum gas fee.
By leveraging flash loans, DeFi Saver is providing users with a new range of options for advanced Vault management. With the growing amount of Dai and the continued volatile in crypto markets, managing your Vaults can be a rather stressful process.
Fortunately, DeFi Saver is helping users safely and effectively ensure Vaults always remains well-collateralized while also providing new options to capitalize on a Vault’s profit potential.
The potential for flash loans to provide DeFi users with entirely new financial products, including Vault management, can not be understated. While flash loans have garnered a notorious reputation in the DeFi community in recent months, the innovation that’s possible with this new financial primitive is not widely understood.
DeFi Saver is taking a step in the right direction by showing the power of flash loans. Users will now be able to access more advanced Vault management features which have largely been unavailable until now.
The last 24 hours have been very volatile, but all CDPs in Automation were kept safe against liquidation.
There were over 250 automated Repay transactions, with a total of $1,2m debt paid back.🛡️
— DeFi Saver (@DeFiSaver) March 9, 2020
In the coming years, flash loan use cases will continue to be explored by the DeFi community (for both bad and good). The key takeaway here is that flash loans can battle-harden DeFi protocols while also opening up an entirely new field of opportunity for early adopters. Sophisticated arbitrage opportunities, empowered Vault management, and more are completely democratized by the introduction of flash loans.
Analyst at Bankless – one of the leading resources for open finance. Lucas is an active contributor to the DeFi ecosystem with appearances in other notable DeFi outlets including The Defiant and Our Network. He has years of experience working with dozens blockchain and token startups where he focused on token economics, marketing, and growth.