[nostrademons]

I think that a lot of the motivation for flash loans is that they democratize capital-intensive arbitrage attacks, making the attacks happen sooner, making all of the insecure contracts fail fast and improving the overall security of the DeFi ecosystem. In other words, it's supposed to make platforms fail and people lose money, because each hack exposes a bad contract and takes it out of the environment.

If flash loans didn't exist, then an entity with sufficient capital can still alter prices and exploit differentials in borrowing costs to profit. This is a common complaint about the mainstream financial system - examples include market corners, short squeezes, George Soros breaking the Bank of England, or the Fed artificially lowering borrowing costs for the U.S. Treasury. But they're limited to people who already have a billion dollars. Flash loans let everybody have a billion dollars, so that if there's an arbitrage opportunity you don't need capital to take advantage of it.

[foepys]

> In other words, it's supposed to make platforms fail and people lose money, because each hack exposes a bad contract and takes it out of the environment.

I can already hear my grandma say "I'm glad I lost all my savings, now the platform gets safer."

Apart from that, it's naive to think that this makes the ecosystem safer. We still have SQL injections and XSS in the wild even though everybody should know how to avoid them after literal decades of exploits.

[nostrademons]

The issue with SQL injection and XSS is that there is usually no cost to the website with the vulnerability. They can keep on doing business as usual, after a suitable mea culpa, without significant consequences.

When there's a crypto vulnerability, the contract usually gets drained. It goes bankrupt. There is no funds and no viable business there. Therefore, there's not just a significant incentive to guard against security holes, but there's also a selection mechanism.

People underestimate the power of bankruptcy, failure, death, revolution, nonexistence, and other selection mechanisms. Selection bias is the most powerful force in nature, because natural systems without a selection mechanism tend to get selected away. Arguably a lot of the problems with our current economy come about because we fail to let things fail.