It's certainly fascinating... ETH enables a collateral-less loan, which is wild, and something I'd point towards for skeptics who "haven't seen one use case crypto/blockchain enables that couldn't be done with a client-server model".
The reason I say it verges on illicit, is that the most profitable flash-loan trades I've read about usually depend on some form of market manipulation and special knowledge about price oracles. They're not illicit in their own right, and can be a great tool for arbitrageurs I imagine.
I still don't get it. Can you point me to some actual examples?
Do you mean people are front running contract using data provided by oracles? I would not see that as illegal, just as removing friction coming from oracles that have too much latency.
I don't know that it's outright illegal. But manipulating the price of a token for your own gain, at someone else's expense, is illicit imo.
If I know how an oracle calculates a price for a pair, I can probably alter the oracle's value for it (with a lot of volume from your flash loan), without affecting other exchanges value for it. This lets you create arb opportunities for yourself: https://www.trustnodes.com/2020/02/15/hacker-makes-360000-et...
The reason I say it verges on illicit, is that the most profitable flash-loan trades I've read about usually depend on some form of market manipulation and special knowledge about price oracles. They're not illicit in their own right, and can be a great tool for arbitrageurs I imagine.
https://www.coindesk.com/defi-exploits-flash-loans-industry-...