Flash Loans
Flash loans are a powerful DeFi primitive that allow users to borrow assets without collateral, as long as the borrowed amount is returned within the same transaction block.
What Are Flash Loans in Morpho?
Morpho's flash loans are similar to other DeFi protocols where these:
- Allow borrowing without prior collateral
- Require repayment within the same transaction
- Execute in a single block
- Are primarily meant for developers and advanced users
How Morpho Flash Loans Work
The core flash loan functionality is implemented through the flashLoan
function in the Morpho contract with a corresponding callback mechanism.
The Flash Loan Flow in Morpho
- Initiation: A user contract calls
morpho.flashLoan(token, amount, data)
(refer here for the testing suite example) - Asset Transfer: Morpho transfers the requested token amount to the calling contract
- Callback Execution: Morpho calls
onMorphoFlashLoan(amount, data)
on the caller contract (here for the test example) - Execution of Logic: The user's contract executes its intended operations
- Repayment: The user's contract must approve Morpho to pull back the borrowed amount
- Completion: Morpho pulls the funds back from the caller contract
If at any point the flow fails (especially if the repayment fails), the entire transaction reverts.
Implementing a Flash Loan in Morpho
To use a flash loan with Morpho, you need to:
- Create a contract that implements the
IMorphoFlashLoanCallback
interface - Implement the
onMorphoFlashLoan
function that will handle your logic - Ensure your callback function approves the Morpho contract to pull back the borrowed amount
Flash Loan Use Cases with Morpho
- Arbitrage: Execute trades across different protocols to profit from price discrepancies
- Collateral Swaps: Replace one collateral type with another in a single transaction
- Self-Liquidation: Liquidate your own position to avoid liquidation penalties
- Flash Actions: Combine multiple Morpho operations in a single transaction
Security Considerations for Morpho Flash Loans
- Transaction Atomicity: If your callback fails to approve the repayment, the entire transaction will revert
- Contract Security: Never leave funds in your flash loan contract permanently
- Reentrancy: Be careful about calling external contracts within your flash loan logic
- Gas Management: Flash loans are complex operations that consume significant gas
Morpho-Specific Callbacks
Morpho implements a broader callback system:
IMorphoLiquidateCallback
: For liquidation operationsIMorphoRepayCallback
: For repayment operationsIMorphoSupplyCallback
: For supply operationsIMorphoSupplyCollateralCallback
: For supplying collateral
This comprehensive callback system allows for more complex transaction patterns beyond simple flash loans, such as the "Flash Actions" test which combines supply, borrow, repay, and withdraw operations in a single transaction flow.