A flash loan lends any amount to anyone with no collateral and no credit check. It is safe for the lender because of a property of transactions rather than any assessment of the borrower.
Atomicity is the whole mechanism
A blockchain transaction either completes in full or has no effect. Partial execution is not a state the chain can be left in.
A flash loan sends funds, calls the borrower's logic, then checks the balance at the end. If the funds plus a fee are not present, the entire transaction reverts.
The loan never happened in that case. There is no default because there is no lasting state in which the loan exists unrepaid.
The borrower must do everything in one call
Whatever the borrowed funds are used for has to complete within the same transaction, which restricts uses to operations that are themselves on-chain and immediate.
That rules out anything requiring time, human decision or another chain, and it rules out simply taking the money.
What remains is a set of operations that begin and end with the same asset: arbitrage, collateral swaps, refinancing and liquidations.
Capital requirements collapse for legitimate uses
Arbitrage between venues normally requires holding inventory large enough to matter. Flash loans let a participant borrow that inventory for the duration of one transaction.
Refinancing a lending position from one protocol to another usually requires repaying the first loan before withdrawing collateral, needing capital the borrower does not have.
A flash loan bridges that gap, closing and reopening the position atomically, which makes the operation a matter of gas cost rather than of balance sheet.
They amplify existing vulnerabilities
The same removal of capital requirements applies to attacks. An exploit needing enormous size to move a price is no longer limited by the attacker's funds.
Protocols that derived prices from the instantaneous state of a single pool were exposed to exactly this, and many were drained through it.
The flash loan did not create the flaw; it removed the capital barrier that had been concealing it, which is why the response was to fix price sources rather than to restrict borrowing.
The fee model is unusual
Lenders charge a small percentage of the amount borrowed, earned within a single block and with no duration risk whatsoever.
For a pool, this is income on capital that was already sitting idle, since the funds return before anything else could have used them.
The result is a lending market where the interest rate is unrelated to time, which is a genuinely novel arrangement rather than a variation on an existing one.