Flash loans as a capital boost tool

Along with the launch of the first DeFi protocols, on-chain arbitrage opportunities began to emerge. The number of such opportunities only increased due to the poor UX of first DEXs and high market volatility, when traders did not have time to cancel limit orders. Flash Boys 2.0 authors researched on-chain arbitrage in detail and concluded that the presence of profitable opportunities could lead to a decrease in Ethereum’s security.

With the evolvement of DeFi, arbitrage opportunities have become more sophisticated. Due to AMM DEXs, traders began to increase their arbitrage profits using sandwich attacks. Additionally, new on-chain profit opportunities appeared, for example, liquidations in lending protocols.