Flash Swap
A DeFi mechanism letting a user withdraw tokens from a liquidity pool upfront and pay (or return them) later in the same transaction, as long as the pool is made whole by the end.
A flash swap lets a user withdraw tokens from an automated market maker's liquidity pool before paying for them, execute arbitrary logic with those tokens, and only settle payment back to the pool at the very end of the same transaction — if the pool isn't made whole (through payment, or by returning the equivalent tokens) by the transaction's end, the entire transaction reverts as if it never happened. This mirrors the same all-or-nothing, single-transaction guarantee used by a flash loan (see Kaavon's "Flash Loan" glossary definition).
The key difference from a flash loan is that a flash swap draws specifically from an existing liquidity pool's own reserves rather than a dedicated lending facility, and it's commonly used for arbitrage strategies where a trader wants to use one token to profitably acquire a different token elsewhere, then use proceeds from that second step to settle the original swap — all within a single atomic transaction that either fully succeeds or has no effect at all.
Examples
- An arbitrageur might use a flash swap to withdraw one token from a pool, sell it elsewhere for a different token, and use the proceeds to settle the original swap, all within one transaction.
- Like a flash loan, a flash swap reverts entirely if the pool isn't made whole by the end of the transaction, so there's no risk of the pool actually losing funds.