A flash loan is an unlimited uncollateralized loan of that takes place within one transaction.

These loans involve very limited risk since they fail to be granted if the transaction does not complete with all the funds plus associated fees are returned instantly.

These types of instruments are unique to DeFi and are facilitated by one or multiple smart contracts.

Flash loads are typically used when arbitrage or other types opportunities arise. For example, if an asset grants access to another asset someone may use a flash loan to temporarily acquire the first asset (e.g. a certain NFT) to then unlock the second asset (e.g. some reward for owning that NFT), sell both assets, return the loan and plus their associated fees and pocket the difference.

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