Let’s break it down. Simply put, a flash loan is, as the name implies, a loan that is opened and closed in a very short amount of time. More specifically, it is opened and closed in the same transaction. Flash loans are used to execute atomic trades that either capitalize off of inefficiencies in the market or provide some other functionality to the borrower. Atomic trades are trades that can be finalized in one transaction and almost all on-chain arbitrage falls under this category. By now you hopefully realize how powerful this financial instrument can be. But with this power comes responsibility. While White Whale is said to be the first to roll out flash loans on Terra (and the whole Cosmos!), a number of protocols already offer it on Ethereum. The sometimes bad connotation linked to flash loans is caused by a number of exploits that happened on Ethereum in which hackers used this tool to do so-called re-entrancy attacks. Fortunately, CosmWasm (the smart contract language of Terra) is designed to avoid this kind of attack. When comparing CosmWasm to Ethereum’s smart contract language the developers state: “A big difference is that we avoid all reentrancy attacks by design. This point deserves an article by itself, but in short, a large class of exploits in Ethereum is based on this trick .” And, “Cosmwasm avoids this completely by preventing any contract from calling another one directly.” These precautions enable White Wh...
