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Turning $0 into $300,000 With Flashloans - YouTube
Channel: Max Maher
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there's a secret world that you probably
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aren't aware of traders borrowing
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millions to invest with no collateral
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but there's a catch if they can't return
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the money within 10 seconds they could
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lose everything so who are these traders
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well they call themselves the flash boys
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and they aren't making your average
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order book trade this is lending on
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steroids and it could jeopardize the
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entire crypto ecosystem so welcome to
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the dangerous dog eat dog world of flash
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trading speaking of only 10 seconds to
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take advantage you can take advantage of
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signing up for my patreon linked in the
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description that you'll have access to
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my full portfolio and buy alerts that
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have landed me up more than 100 percent
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the year is 2018 and marble a now
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defunct smart contract bank introduces
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us to something radically new flash
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loans a type of loan that could never
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exist in our traditional lending system
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so foreign to what we're used to in
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traditional finance that even today
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there isn't a good analogy for it the
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term comes from this book by michael
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lewis flash boys is about the wild world
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of high frequency trading in the us with
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flash loans for the very first time you
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could borrow as much as you wanted to
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with zero collateral as long as the
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funds were returned within the same
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transaction suddenly people were
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borrowing millions yes
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millions of dollars owning guess how
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much nothing this meant anyone could be
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a crypto whale however the idea didn't
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get much traction at first because the
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market was turning bearish at the time
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and hype was starting to slow down in
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the crypto markets and the world started
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forgetting about flash loans altogether
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and that is until ave jumped in the
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scene in 2020 so you might be asking
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yourself why would anyone borrow
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millions of dollars within one
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transaction if you give it back within
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10 seconds and the answer is profit to
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help us understand how much can be made
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with flash loans i chatted with software
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engineer andreas i mainly used them for
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arbitrage trading there was no use case
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flash for flash loans back then because
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people didn't know what to do with those
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flash loans if we want to see a more
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clear example that one we know that a
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flash loan happened here uh for sure so
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that that one guy made 300 000
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in
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10 seconds
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yeah that one guy yeah there are three
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main reasons you might choose to take
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out a flashlight the most popular is to
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take advantage of an arbitrage
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opportunity so picture this your mom
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trades apples for two dollars and your
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dad trades apples for three dollars
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they're they're competitors if this
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remains constant you just discovered an
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infinite money glitch by buying from
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your mom and selling to your dad yes
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this is gonna mess up your inheritance
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but you can make money in the short run
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this is known as an arbitrage
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opportunity eventually your dad says hey
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i have way too many apples so he lowers
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the price hoping to get rid of that
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extra supply this means the opportunity
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has essentially closed and the range
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between the three and two dollar apples
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narrows with each transaction this is
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what makes markets efficient there's
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actually an interesting book on this
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called a random walk down wall street
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that explores these concepts even
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further here's how arbitrage could work
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in crypto if solana is 160 on kucoin but
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it's only 157 on coinbase depending on
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fees you could profit off of this price
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discrepancy flash loans allow you to do
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this without ever actually buying solana
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so basically this person found that
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there was big price discrepancy between
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uniswap and sushi swap yeah among uh
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three
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three different
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pairs and exploited that difference to
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[Music]
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to get the profit now a second reason
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for flash loans is called collateral
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swaps this would make a traditional
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banker's head spin in order to borrow an
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asset traditionally you need collateral
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something worth money that shows that
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you're good for the loan in regular
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finance collateral is fairly fixed if
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you borrow 100 000 against your home you
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can't easily decide tomorrow that you'd
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rather switch and instead borrow against
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the pile of gold that you conveniently
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own instead you know you would have to
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do all sorts of paperwork you would need
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to go through a refinancing process and
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get the proper approvals with a flash
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loan you're actually able to swap out
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your collateral on a loan for another
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asset within a single 10 second
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transaction and then we have self
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liquidation if it's found the collateral
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you put up for a loan is no longer worth
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enough to keep that loan you will be
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liquidated losing all of your money with
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a flash loan you can actually borrow
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money for free plus transaction fees and
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then liquidate yourself and repay your
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own loan a concept that is confusing
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because it goes against everything we
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know about traditional finance it it's
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like having your cake and eating it too
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borrowing money for free to trade or to
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pay back your own loan to save yourself
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it doesn't seem real or legal for that
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matter but it is now even though there's
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no collateral there are still risks of
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your transaction not going through
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successfully the first risk is being
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front run so remember that analogy where
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the mom and dad are trading apples for
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whatever reason well arbitrage
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opportunities don't last forever that's
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because once someone takes advantage of
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an opportunity it gets closed off a bot
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may notice your transaction in queue for
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an opportunity and bid a higher
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transaction gas fee taking that
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transaction right out of your hands now
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another problem is price slippage so
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let's say you find an arbitrage
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opportunity where an asset has a price
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mismatch of 10
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you buy it for 100 and you aim to sell
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it for 110
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you need to consider slippage supply and
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demand as you sell your asset you are
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supplying it into an exchange this
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increase in supply may lead the assets
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price to drop lower if demand doesn't
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keep up at that same 110 dollar price
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this is mostly an issue on large trades
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finally the biggest risk is network fees
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in ave's case they take a 0.09 fee not
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too shabby considering that you're
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leveraging potentially millions of
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dollars so if you borrow one million
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dollars to buy from one exchange and
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sell it off on another you could be
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looking at a five-digit profit while
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only losing out on a 900 fee plus you
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know some additional transaction fees
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the risk here is that you need to pay
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transaction fees whether the transaction
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is successful or not that's where you
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can potentially lose some money so if
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borrowing millions without any
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collateral and having free reign to send
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funds from a smart contract pretty much
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anywhere on the same network sounds like
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a recipe for a disaster you'd only kind
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of be right so if you understand basic
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computer programming you're probably
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ready to execute a flash loan but at
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what point does the 10 second loan
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become nicholas cage's gone in 60
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seconds well take a look at the cruel
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fate of pancake bunny on may 19 a hacker
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made off with about 45 million in a
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flash loan exploit tanking the price of
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bunny tokens by 96 from 220 down to
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around 10 within a single day weeks
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later it still couldn't manage to break
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15 and that wasn't the end for bunny
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finance because on july 16th the
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company's new polygon blockchain fork
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paulie bunny got hit with yet another
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flash loan attack minting 2.1 million
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dollars worth of poly bunny tokens
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tanking that token from around ten
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dollars to below two dollars some people
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think that pancake bunny knew about this
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exploit and it was an inside job but
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whether it was or not here's how it was
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done first the hacker borrowed more than
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700 million in bnb from seven pancake
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bunny lending pools and around 3 million
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in tether they use this to manipulate
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the price of bnb using a bug in pancake
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bunny's bnb usdt liquidity pool this
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allowed them to mint almost 7 million
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bunny tokens the hacker then dumped
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these tokens for about 2.4 million bnb
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causing the price of bunny to plummet
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after repaying the flash loans the
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hacker was left with over 100 000 bnb
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worth about 45 million dollars the
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exploit here was a result of a flaw in
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the pancake bunny protocol once the
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hacker knew how the protocol was
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determining prices all he had to do was
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manipulate the price of each component
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to game the system and steal the money a
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bunny that even nicholas cage couldn't
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put back in the box
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put the bunny
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back in the box now another example is
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the attack on cream finance through a
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similar flash lone attack this was the
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third largest hack in d5 history the
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breach involved several different tokens
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that took advantage of a loophole in how
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automatic market makers discover the
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price of an asset the various hacks did
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have one big benefit though the
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community did some digging and found
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that the vulnerability in a lot of these
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attacks was due to using centralized
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oracles just one reason why many people
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have been rushing to chain link over the
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past two years without oracles
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blockchains are basically stuck in their
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own world without any idea of what's
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happening outside of their own ecosystem
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making them ripe for exploitation the
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completely new technology of flash loans
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are causing profiteers to take a look at
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old dapps to see if they can go ahead
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and exploit their systems and this is
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where we're at now a new gold rush in
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crypto a pirate era of flash loans where
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anyone can search for opportunities
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within smart contracts as long as they
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can get out within 10 seconds so here's
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a question that i want to ask you is it
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ethical to exploit code for profit of
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course
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this is the other side of flash loans
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and i believe we should not put a black
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label on those new financial products
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it is just what happens with every new
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technology to me i don't see a major
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issue with flash loans every system has
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their own individual quirks and
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blockchains have the quirk of settling
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transactions in batches because
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transactions are settled in batches this
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allows people to use the funds within
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that transaction as long as they put
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everything back where they found it
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before the transaction settles and
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ultimately no one should be hurt of
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course we don't want black hat actors to
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steal from people or steal from
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exchanges but it seems with time systems
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will be built in order to prevent the
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darker side of flash loans from here i'd
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description of this video if you use
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receive 100 in free bitcoin just for
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joining now next up i recommend you
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watch this video covering other
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underground investment strategies and i
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would like to thank you so much for
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watching and i hope you have a
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profitable day
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