White Whale Releases Details on Flash Loan Architecture
November 30 2021 - 5:45AM
NEWSBTC
Let’s break it down. Simply put, a flash loan is, as the name
implies, a loan that is opened and closed in a very short amount of
time. More specifically, it is opened and closed in the same
transaction. Flash loans are used to execute atomic trades that
either capitalize off of inefficiencies in the market or provide
some other functionality to the borrower. Atomic trades are trades
that can be finalized in one transaction and almost all on-chain
arbitrage falls under this category. By now you hopefully realize
how powerful this financial instrument can be. But with this power
comes responsibility. While White Whale is said to be the first to
roll out flash loans on Terra (and the whole Cosmos!), a number of
protocols already offer it on Ethereum. The sometimes bad
connotation linked to flash loans is caused by a number of exploits
that happened on Ethereum in which hackers used this tool to do
so-called re-entrancy attacks. Fortunately, CosmWasm (the
smart contract language of Terra) is designed to avoid this kind of
attack. When comparing CosmWasm to Ethereum’s smart contract
language the developers state: “A big difference is that we avoid
all reentrancy attacks by design. This point deserves an article by
itself, but in short, a large class of exploits in Ethereum is
based on this trick .” And, “Cosmwasm avoids this completely by
preventing any contract from calling another one directly.” These
precautions enable White Whale to provide this service without
having to worry too much about other protocols being exploited. To
really understand how all this works, let’s look at, and briefly
unpack the White Whale flagship vault. The UST vault allows users
to deposit UST into the vault in a simple, single-step process. The
total liquidity in the UST vault then acts as a general-purpose
liquidity pool with a series of in-house arbitrage strategies. The
first of which is all about keeping the peg. There are also other
strategies in the works, such as exploiting price inefficiencies
among multiple exchanges, as well as automated liquidations on Mars
and Levana. All of these strategies make the ecosystem more stable
and efficient, and they all use the liquidity of the UST vault.
These strategies bring us back to flash loans: when any of our bots
detect a profitable arbitrage opportunity, the smart contract
linked to that strategy will ask for a flash loan from the UST
vault. The UST vault will then withdraw the UST from Anchor
protocol (where it is yielding a comfy 19.5% while idle) and
provide the contract with borrowed money to execute the arbitrage.
After the arbitrage, all funds are returned to the vault. This is
how we plan to provide Anchor+ yields. A question that has been
raised, is this – what if the trade didn’t make a profit? Or what
if the borrower just doesn’t repay the loan? Various mechanisms
have been put in place, to ensure depositors don’t get rugged.
First, when a flash loan is requested, White Whale saves the total
value of the vault. Then funds are sent out to the borrower (i.e.
the arb bot) for them to execute the trade. What has been added is
a callback at the end of the program which can not be altered, and
is guaranteed to execute. After whatever the borrower has executed
the trade, that callback is executed. The callback is essentially
step two. It re-calculates the value of the vault and compares it
with the initial value before the loan. If this amount is smaller
than the initial amount it throws an ERROR and reverts the whole
transaction, aka the flash loan. The transaction then fails and
it’s like nothing ever happened. Effectively this means that the
flash loan will only execute if it pre-determines a profitable
result, otherwise, it will cancel itself. Long term, there will be
a whitelisting process for the community to build bots to onboard
through on-chain governance and utilize the White Whale flash loan
architecture. The community will be able to decide which bots will
benefit and secure the ecosystem and vote to whitelist them. There
will of course be a small fee (the borrowing cost of the loan)
which will automatically get distributed to the depositors. In
order to ensure security for this complex and innovative
architecture, White Whale has already scheduled multiple audits
with some of the most highly respected auditors in the industry.
The foundation has already been built, and now the focus is
about getting the tools into the hands of our community, empowering
them to protect the peg and stabilize the ecosystem.
Ethereum (COIN:ETHUSD)
Historical Stock Chart
From Aug 2024 to Sep 2024
Ethereum (COIN:ETHUSD)
Historical Stock Chart
From Sep 2023 to Sep 2024