Flash Loan System

Flash loan is an innovative financial tool in DeFi that allows users to borrow and repay funds within the same transaction without collateral. This tutorial will explain how to implement a secure flash loan system.

Features

• Uncollateralized lending
• Single transaction completion
• Flexible fee mechanism
• Multi-token support
• Secure callback mechanism

Contract Implementation

// SPDX-License-Identifier: MIT
pragma solidity ^0.8.0;

import "@openzeppelin/contracts/token/ERC20/IERC20.sol";
import "@openzeppelin/contracts/security/ReentrancyGuard.sol";
import "@openzeppelin/contracts/access/Ownable.sol";

/**
 * @title IFlashLoanReceiver
 * @dev Flash loan receiver interface
 */
interface IFlashLoanReceiver {
    function executeOperation(
        address token,
        uint256 amount,
        uint256 fee,
        bytes calldata params
    ) external returns (bool);
}

/**
 * @title FlashLoan
 * @dev Flash loan contract implementation
 */
contract FlashLoan is ReentrancyGuard, Ownable {
    // Fee rate (0.1%)
    uint256 public constant FLASH_LOAN_FEE = 1; // 1 = 0.1%
    uint256 public constant FEE_DENOMINATOR = 1000;
    
    // Supported tokens list
    mapping(address => bool) public supportedTokens;
    
    // Events
    event FlashLoan(
        address indexed receiver,
        address indexed token,
        uint256 amount,
        uint256 fee
    );
    event TokenAdded(address indexed token);
    event TokenRemoved(address indexed token);

    /**
     * @dev Add supported token
     */
    function addSupportedToken(address token) external onlyOwner {
        require(token != address(0), "Invalid token address");
        require(!supportedTokens[token], "Token already supported");
        supportedTokens[token] = true;
        emit TokenAdded(token);
    }

    /**
     * @dev Remove supported token
     */
    function removeSupportedToken(address token) external onlyOwner {
        require(supportedTokens[token], "Token not supported");
        supportedTokens[token] = false;
        emit TokenRemoved(token);
    }

    /**
     * @dev Execute flash loan
     * @param receiver Flash loan receiver contract address
     * @param token Borrowed token address
     * @param amount Borrowed amount
     * @param params Additional parameters
     */
    function flashLoan(
        address receiver,
        address token,
        uint256 amount,
        bytes calldata params
    ) external nonReentrant {
        require(supportedTokens[token], "Token not supported");
        require(amount > 0, "Invalid loan amount");
        
        IERC20 tokenContract = IERC20(token);
        uint256 balanceBefore = tokenContract.balanceOf(address(this));
        require(balanceBefore >= amount, "Insufficient liquidity");

        // Calculate fee
        uint256 fee = (amount * FLASH_LOAN_FEE) / FEE_DENOMINATOR;
        
        // Transfer tokens to receiver
        require(
            tokenContract.transfer(receiver, amount),
            "Transfer failed"
        );

        // Call receiver's callback function
        require(
            IFlashLoanReceiver(receiver).executeOperation(
                token,
                amount,
                fee,
                params
            ),
            "Flash loan execution failed"
        );

        // Verify repayment
        uint256 balanceAfter = tokenContract.balanceOf(address(this));
        require(
            balanceAfter >= balanceBefore + fee,
            "Flash loan not repaid"
        );

        emit FlashLoan(receiver, token, amount, fee);
    }

    /**
     * @dev Withdraw tokens from contract (admin only)
     */
    function withdrawToken(
        address token,
        address to,
        uint256 amount
    ) external onlyOwner {
        require(to != address(0), "Invalid recipient");
        IERC20(token).transfer(to, amount);
    }
}

/**
 * @title FlashLoanReceiver
 * @dev Flash loan receiver contract example
 */
contract FlashLoanReceiver is IFlashLoanReceiver {
    address public flashLoanContract;

    constructor(address _flashLoanContract) {
        flashLoanContract = _flashLoanContract;
    }

    /**
     * @dev Execute flash loan operation
     */
    function executeOperation(
        address token,
        uint256 amount,
        uint256 fee,
        bytes calldata params
    ) external override returns (bool) {
        require(
            msg.sender == flashLoanContract,
            "Caller is not flash loan contract"
        );

        // Implement your flash loan logic here
        // ...

        // Ensure sufficient balance for repayment
        uint256 amountToRepay = amount + fee;
        IERC20(token).transfer(flashLoanContract, amountToRepay);

        return true;
    }

    /**
     * @dev Initiate flash loan
     */
    function initiateFlashLoan(
        address token,
        uint256 amount,
        bytes calldata params
    ) external {
        FlashLoan(flashLoanContract).flashLoan(
            address(this),
            token,
            amount,
            params
        );
    }
}

Key Concepts

Flash Loan Principles

Flash loan workflow:

1. User requests loan
2. Contract transfers tokens
3. Execute user logic
4. Verify repayment amount
5. Complete transaction

Callback Mechanism

Receiver contract must implement:

• Standard interface
• Execute operation function
• Repayment logic

Security Verification

System ensures:

• Single transaction completion
• Full repayment
• Prevention of reentrancy attacks

Security Considerations

1. Transaction Atomicity

   • Use require validation
   • Check repayment amount
   • Prevent intermediate states

2. Access Control

   • Verify caller identity
   • Limit admin permissions
   • Secure contract calls

3. Reentrancy Protection

   • Use ReentrancyGuard
   • State checks
   • Secure call order

4. Fund Security

   • Balance verification
   • Fee calculation
   • Transfer confirmation

Best Practices

1. Contract Design

   • Modular structure
   • Clear interfaces
   • Complete event logging

2. Parameter Management

   • Reasonable fees
   • Token whitelist support
   • Amount limits

System Architecture

1. Core Components

• Flash Loan Contract: Manages lending operations
• Receiver Interface: Standardizes callback implementation
• Security Module: Handles transaction safety
• Fee System: Manages lending fees

2. Process Flow

1. User initiates flash loan
2. System validates request
3. Tokens are transferred
4. User logic executes
5. Repayment is verified

Implementation Guidelines

1. Contract Setup

• Initialize parameters
• Set up token support
• Configure fee system
• Implement security checks

2. Operation Flow

• Request validation
• Token transfer
• Callback execution
• Repayment verification
• Event emission

FAQ

1. Basic Concepts

Q: What is a flash loan? A: A flash loan is a type of uncollateralized loan where borrowing and repayment must occur within the same transaction block.

Q: How do flash loans work? A: Flash loans work through:

• Atomic transactions
• Smart contract callbacks
• Balance verification
• Fee management

2. Security

Q: How to ensure flash loan security? A: Security measures include:

• Transaction atomicity
• Balance checks
• Reentrancy protection
• Access control
• Event logging

Q: How to prevent flash loan attacks? A: Protection measures include:

• Validation checks
• Secure callbacks
• Amount limits
• Token whitelisting
• Transaction monitoring

3. Implementation

Q: How to implement a flash loan receiver? A: Implementation steps include:

• Interface compliance
• Callback logic
• Repayment handling
• Error management
• Security checks

Q: How to handle flash loan failures? A: Failure handling includes:

• Transaction reversal
• Error reporting
• State recovery
• Balance verification
• Event logging

4. Optimization

Q: How to optimize flash loan performance? A: Optimization strategies include:

• Gas optimization
• Code efficiency
• State management
• Event optimization
• Error handling

Q: How to improve flash loan usability? A: Improvements include:

• Clear documentation
• Error messages
• Event logging
• Parameter validation
• User feedback