A flash loan makes assets available during a single blockchain transaction without requiring collateral for the temporary borrowing itself. In the standard form, the borrower must return the principal and any required fee before that transaction completes. If repayment fails, the transaction's contract operations revert, although execution can still consume gas.
Why the lender can accept no collateral
Smart contracts execute a sequence: release liquidity, allow the borrower's programmed operations, and check repayment. These steps succeed together or revert together. The constraint is the same transaction, not merely a promise to repay later in the same block.
Some protocol interfaces also permit an explicitly authorized transition into ordinary debt backed by collateral or credit delegation. That is a separate debt arrangement, not permission to retain an unpaid unsecured flash loan.
Uses and practical constraints
Flash liquidity can support arbitrage, collateral swaps, refinancing, or liquidations without requiring the user to own the full working capital in advance. Available pool liquidity, contract support, fees, slippage, and transaction competition constrain the result.
Flash loans can also amplify attacks against vulnerable pricing or accounting systems, but borrowing atomically is not itself an exploit. A successful repayment check guarantees neither a profitable strategy nor protection for other protocols used in the transaction.