Flash loans have emerged as a useful means of setting up effective arbitrage trades for cryptocurrency traders interested in exploiting opportunities between different crypto platforms. Up until recently they have required a considerable amount of technical knowledge to set up.
Tech platform Flashloans.com has launched as a much easier cryptocurrency interface for traders, leveraging drag and drop technology to help them to use flash loans as leverage on arbitrage trades.
What are flash loans and why use them?
Part of the appeal of flash loans has been the fact that block chain technology lets the lender verify the trade and collateral on a soup to nuts basis, allowing the loan to be approved instantly. Typical duration is 15 seconds. Traders stake Ethereum but are receiving only 80% of the value of the crypto, so it is not a 1:1 deal, more like 0.8:1. Barriers to entry are low, and there remains significant liquidity in the market to allow for substantial trades from institutions. The market is still a niche one currently, with solidity developers making up a lot of the volume.
One of the new areas of opportunity for flash loans has been for lenders of Bitcoin seeking to exit lending platforms before costly margin calls obliterate their positions. This is an ongoing issue due to the falling price in BTC. To discover the full scope of the problem, Flashloans compared how many margin calls an investor with staked Bitcoins would have to face since the market peak in November at $67,566.
The liquidation point (20% less than this peak) was at $54,052 which took place on 3rd December 2021. If you had then borrowed at this point in time the next 20% drop you would have faced would have been in January 2022 when it went to $43,242. Investors would have faced another 20% drop in May 2022 when it reached $34,593 followed by another to $27,675 on 12th June and a further margin call on 18th June when it hit an all-time low of $22,140.
All told, had an investor placed staked funds in Bitcoin on a lending platform when the market peaked in November last year, they would have had to face five margin calls. Many investors have faced punitive margin calls since November 2021 (up to 14% for some platforms) and in some cases can’t even withdraw their depreciated assets.
Using Flashloans to liquidate staked loans
Flashloans lets crypto lenders take out a loan to exit lending positions at the market rate and avoid punitive fees when self-liquidating. Traders of crypto markets using the platform don’t need any knowledge of solidity programming and only have to pay the gas fees for the Ethereum network for trades they make.
David Pedrini at Flashloans told us that the platform is also working on a new feature that would help traders to identify arbitrage opportunities within the market which they could then back with a flash loan. Time scale on that one is estimated as the next three months. “If you found an opportunity, you could then build a loan based on that trade,” he said.
Pedrini also reported that due to high fees on ETH killing the prospect for smaller arb opportunities, the site is also looking at integrating Polygon. Right now the flash loans trading market remains very small, but it is anticipated that market volatility will continue to create trading opportunities. “We don’t see this opportunity going away anytime soon,” Pedrini said.
