Arbitrage is one of the oldest money-making strategies in finance. Flash loans made it accessible to anyone willing to learn. Here is how it works without the technical jargon.
What Is Arbitrage?
Arbitrage means buying something cheap in one place and selling it for more in another place simultaneously. The profit is the price difference.
In traditional stock markets, arbitrage opportunities close in milliseconds because professional trading firms with supercomputers are constantly scanning for them. Regular people cannot compete.
In crypto, especially across decentralized exchanges, price differences persist longer. Different DEXs have different liquidity pools and different traders. Prices do not always stay perfectly aligned.
Where Flash Loans Come In
The problem with arbitrage is capital. To profit meaningfully from a 0.5% price difference, you need to move large amounts of money. Most people do not have hundreds of thousands of dollars sitting around.
Flash loans solve this. You borrow the capital needed for the arbitrage, execute the trade, repay the loan plus a small fee, and keep the profit — all without owning the capital yourself.
A Concrete Example
Token X trades at $1.00 on Uniswap and $1.015 on SushiSwap.
- Borrow $100,000 via flash loan
- Buy 100,000 Token X on Uniswap at $1.00
- Sell 100,000 Token X on SushiSwap at $1.015
- Receive $101,500
- Repay $100,090 (loan plus 0.09% fee)
- Keep $1,410 profit minus gas fees
The Reality Check
Gas fees on Ethereum mainnet can eat $50-100 per transaction. The price difference must be large enough to cover this. On Layer 2 networks like Arbitrum, gas costs cents, making smaller opportunities profitable.
Competition is fierce. Automated bots scan constantly. But opportunities exist, especially in newer and smaller token pairs.
Tutorials on finding and executing these opportunities: https://t.me/flashloans_tut
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