Recently, in a clever use of technology, an arbitrage bot was able to flash loan $200 million of DAI stablecoin from MakerDAO, resulting in a modest $3.24 profit after transaction fees. This was achieved by taking advantage of MakerDAO’s ‘DssFlash’ contract, which allows users to borrow any amount of DAI without incurring fees, as reported by crypto data provider Arkham Intelligence.
A flash loan is an innovative financial instrument wherein a loan is received and paid back within a single block without any upfront collateral. In this specific case, the bot borrowed 200 million DAI tokens and supplied them to the Aave DAI market. It then borrowed $2,300 worth of wrapped ether (WETH) against the DAI tokens. The WETH was then used to buy Threshold Network (T) on Curve, which was subsequently sold on Balancer in a series of single-block transactions.
While it may appear that this particular bot found a clever, albeit small, profit, the overall experience serves as a reminder of the potential downsides associated with flash loans. The total profit from these activities was initially $33; however, almost $30 of that was claimed by transaction and protocol fees, leaving just $3.24 in net profit.
Aside from the minimal gains, flash loans have been historically linked to more nefarious activities. A number of flash loan exploits on decentralized finance (DeFi) platforms such as Platypus and 0VIX have led to losses exceeding $10 million. In light of such incidents, one cannot help but ask whether the potential risks outweigh the benefits.
The future success of flash loans in blockchain technology is still uncertain. Proponents argue that these loans represent an efficient means of raising capital without unnecessary collateral, while critics point to the security risks and potential for misuse, which, as mentioned, are well-documented with platforms like Platypus and 0VIX.
This recent case of the arbitrage bot making a small profit by flash loaning 200 million DAI presents a prime example of an ongoing discussion in the crypto and blockchain community. The technology may be increasingly popular and innovative, but it is vital to consider whether the possible rewards are worth the inherent dangers that come with it. Only time will tell if flash loans will emerge as a trusted financial tool or serve as a cautionary tale steeped in controversy.
Source: Coindesk
