Flash loans and traditional loans are so different that comparing them directly is almost misleading. They serve completely different purposes. Understanding the difference reveals something fundamental about what DeFi has created.
Traditional Loans: How They Work
You apply. The bank checks your credit history. They assess your income, your existing debts, your assets. If approved, you receive funds you can spend over weeks, months, or years. You repay gradually with interest.
The entire system is built around trust — specifically, the bank trusting that you will repay over time.
Flash Loans: A Completely Different Model
Flash loans require zero trust. There is no credit check because there is no credit risk. The loan is issued and repaid within a single transaction — typically completing in under 15 seconds.
If you cannot repay, the transaction automatically cancels. The lender never loses funds. No collateral is needed because the technology makes collateral unnecessary.
What Each Is Good For
Traditional loans are better for:
- Buying a house or car
- Starting a business
- Any purpose requiring funds over time
- People without crypto knowledge
Flash loans are better for:
- Executing arbitrage trades
- Managing DeFi positions efficiently
- Accessing capital for a single transaction strategy
- Anyone who understands DeFi mechanics
The Bigger Picture
Flash loans represent something genuinely new in financial history. The concept of an uncollateralized loan that carries zero credit risk did not exist before blockchain technology. It is not better or worse than traditional loans — it is a different financial primitive entirely.
Understanding this distinction is the beginning of understanding why DeFi matters beyond speculation.
Free tutorials on flash loans and DeFi: https://t.me/flashloans_tut
