What Is a Flash Loan Arbitrage Bot?

A flash loan arbitrage bot is a specialized automated tool used in decentralized finance (DeFi) to exploit price discrepancies across different cryptocurrency exchanges. It leverages flash loans, which are uncollateralized loans that must be repaid within the same blockchain transaction. The bot identifies arbitrage opportunities by monitoring various exchanges for price differences of the same asset. When an opportunity is detected, it borrows funds through a flash loan, buys the asset at a lower price on one exchange, sells it at a higher price on another, and repays the loan—all within a single transaction block. This process ensures no risk of default, as the loan and trades are executed atomically. Flash loan arbitrage bot is highly efficient, enabling traders to profit without needing significant upfront capital, but they also require sophisticated programming and incur transaction fees.