ERC-3156: Flash Loans
Simple Summary
This ERC provides standard interfaces and processes for single-asset flash loans.
Abstract
A flash loan is a smart contract transaction in which a lender smart contract lends assets to a borrower smart contract with the condition that the assets are returned, plus an optional fee, before the end of the transaction. This ERC specifies interfaces for lenders to accept flash loan requests, and for borrowers to take temporary control of the transaction within the lender execution. The process for the safe execution of flash loans is also specified.
Motivation
Flash loans allow smart contracts to lend an amount of tokens without a requirement for collateral, with the condition that they must be returned within the same transaction.
Early adopters of the flash loan pattern have produced different interfaces and different use patterns. The diversification is expected to intensify, and with it the technical debt required to integrate with diverse flash lending patterns.
Some of the high level differences in the approaches across the protocols include:
- Repayment approaches at the end of the transaction, where some pull the principal plus the fee from the loan receiver, and others where the loan receiver needs to manually return the principal and the fee to the lender.
- Some lenders offer the ability to repay the loan using a token that is different to what was originally borrowed, which can reduce the overall complexity of the flash transaction and gas fees.
- Some lenders offer a single entry point into the protocol regardless of whether you're buying, selling, depositing or chaining them together as a flash loan, whereas other protocols offer discrete entry points.
- Some lenders allow to flash mint any amount of their native token without charging a fee, effectively allowing flash loans bounded by computational constraints instead of asset ownership constraints.
Specification
A flash lending feature integrates two smart contracts using a callback pattern. These are called the LENDER and the RECEIVER in this EIP.
Lender Specification
A lender
MUST implement the IERC3156FlashLender interface.
The maxFlashLoan
function MUST return the maximum loan possible for token
. If a token
is not currently supported maxFlashLoan
MUST return 0, instead of reverting.
The flashFee
function MUST return the fee charged for a loan of amount
token
. If the token is not supported flashFee
MUST revert.
The flashLoan
function MUST include a callback to the onFlashLoan
function in a IERC3156FlashBorrower
contract.
The flashLoan
function MUST transfer amount
of token
to receiver
before the callback to the receiver.
The flashLoan
function MUST include msg.sender
as the initiator
to onFlashLoan
.
The flashLoan
function MUST NOT modify the token
, amount
and data
parameter received, and MUST pass them on to onFlashLoan
.
The flashLoan
function MUST include a fee
argument to onFlashLoan
with the fee to pay for the loan on top of the principal, ensuring that fee == flashFee(token, amount)
.
The lender
MUST verify that the onFlashLoan
callback returns the keccak256 hash of "ERC3156FlashBorrower.onFlashLoan".
After the callback, the flashLoan
function MUST take the amount + fee
token
from the receiver
, or revert if this is not successful.
If successful, flashLoan
MUST return true
.
Receiver Specification
A receiver
of flash loans MUST implement the IERC3156FlashBorrower interface:
For the transaction to not revert, receiver
MUST approve amount + fee
of token
to be taken by msg.sender
before the end of onFlashLoan
.
If successful, onFlashLoan
MUST return the keccak256 hash of "ERC3156FlashBorrower.onFlashLoan".
Rationale
The interfaces described in this ERC have been chosen as to cover the known flash lending use cases, while allowing for safe and gas efficient implementations.
flashFee
reverts on unsupported tokens, because returning a numerical value would be incorrect.
flashLoan
has been chosen as a function name as descriptive enough, unlikely to clash with other functions in the lender, and including both the use cases in which the tokens lent are held or minted by the lender.
receiver
is taken as a parameter to allow flexibility on the implementation of separate loan initiators and receivers.
Existing flash lenders all provide flash loans of several token types from the same contract. Providing a token
parameter in both the flashLoan
and onFlashLoan
functions matches closely the observed functionality.
A bytes calldata data
parameter is included for the caller to pass arbitrary information to the receiver
, without impacting the utility of the flashLoan
standard.
onFlashLoan
has been chosen as a function name as descriptive enough, unlikely to clash with other functions in the receiver
, and following the onAction
naming pattern used as well in EIP-667.
A initiator
will often be required in the onFlashLoan
function, which the lender knows as msg.sender
. An alternative implementation which would embed the initiator
in the data
parameter by the caller would require an additional mechanism for the receiver to verify its accuracy, and is not advisable.
The amount
will be required in the onFlashLoan
function, which the lender took as a parameter. An alternative implementation which would embed the amount
in the data
parameter by the caller would require an additional mechanism for the receiver to verify its accuracy, and is not advisable.
A fee
will often be calculated in the flashLoan
function, which the receiver
must be aware of for repayment. Passing the fee
as a parameter instead of appended to data
is simple and effective.
The amount + fee
are pulled from the receiver
to allow the lender
to implement other features that depend on using transferFrom
, without having to lock them for the duration of a flash loan. An alternative implementation where the repayment is transferred to the lender
is also possible, but would need all other features in the lender to be also based in using transfer
instead of transferFrom
. Given the lower complexity and prevalence of a "pull" architecture over a "push" architecture, "pull" was chosen.
Backwards Compatibility
No backwards compatibility issues identified.
Implementation
Flash Borrower Reference Implementation
Flash Mint Reference Implementation
Flash Loan Reference Implementation
Security Considerations
Verification of callback arguments
The arguments of onFlashLoan
are expected to reflect the conditions of the flash loan, but cannot be trusted unconditionally. They can be divided in two groups, that require different checks before they can be trusted to be genuine.
- No arguments can be assumed to be genuine without some kind of verification.
initiator
,token
andamount
refer to a past transaction that might not have happened if the caller ofonFlashLoan
decides to lie.fee
might be false or calculated incorrectly.data
might have been manipulated by the caller. - To trust that the value of
initiator
,token
,amount
andfee
are genuine a reasonable pattern is to verify that theonFlashLoan
caller is in a whitelist of verified flash lenders. Since often the caller offlashLoan
will also be receiving theonFlashLoan
callback this will be trivial. In all other cases flash lenders will need to be approved if the arguments inonFlashLoan
are to be trusted. - To trust that the value of
data
is genuine, in addition to the check in point 1, it is recommended to verify that theinitiator
belongs to a group of trusted addresses. Trusting thelender
and theinitiator
is enough to trust that the contents ofdata
are genuine.
Flash lending security considerations
Automatic approvals
The safest approach is to implement an approval for amount+fee
before the flashLoan
is executed.
Any receiver
that keeps an approval for a given lender
needs to include in onFlashLoan
a mechanism to verify that the initiator is trusted.
Any receiver
that includes in onFlashLoan
the approval for the lender
to take the amount + fee
needs to be combined with a mechanism to verify that the initiator is trusted.
If an unsuspecting contract with a non-reverting fallback function, or an EOA, would approve a lender
implementing ERC3156, and not immediately use the approval, and if the lender
would not verify the return value of onFlashLoan
, then the unsuspecting contract or EOA could be drained of funds up to their allowance or balance limit. This would be executed by an initiator
calling flashLoan
on the victim. The flash loan would be executed and repaid, plus any fees, which would be accumulated by the lender
. For this reason, it is important that the lender
implements the specification in full and reverts if onFlashLoan
doesn't return the keccak256 hash for "ERC3156FlashBorrower.onFlashLoan".
Flash minting external security considerations
The typical quantum of tokens involved in flash mint transactions will give rise to new innovative attack vectors.
Example 1 - interest rate attack
If there exists a lending protocol that offers stable interests rates, but it does not have floor/ceiling rate limits and it does not rebalance the fixed rate based on flash-induced liquidity changes, then it could be susceptible to the following scenario:
FreeLoanAttack.sol
- Flash mint 1 quintillion STAB
- Deposit the 1 quintillion STAB + $1.5 million worth of ETH collateral
- The quantum of your total deposit now pushes the stable interest rate down to 0.00001% stable interest rate
- Borrow 1 million STAB on 0.00001% stable interest rate based on the 1.5M ETH collateral
- Withdraw and burn the 1 quint STAB to close the original flash mint
- You now have a 1 million STAB loan that is practically interest free for perpetuity ($0.10 / year in interest)
The key takeaway being the obvious need to implement a flat floor/ceiling rate limit and to rebalance the rate based on short term liquidity changes.
Example 2 - arithmetic overflow and underflow
If the flash mint provider does not place any limits on the amount of flash mintable tokens in a transaction, then anyone can flash mint 2^256-1 amount of tokens.
The protocols on the receiving end of the flash mints will need to ensure their contracts can handle this, either by using a compiler that embeds overflow protection in the smart contract bytecode, or by setting explicit checks.
Flash minting internal security considerations
The coupling of flash minting with business specific features in the same platform can easily lead to unintended consequences.
Example - Treasury draining
Assume a smart contract that flash lends its native token. The same smart contract borrows from a third party when users burn the native token. This pattern would be used to aggregate in the smart contract the collateralized debt of several users into a single account in the third party. The flash mint could be used to cause the lender to borrow to its limit, and then pushing interest rates in the underlying lender, liquidate the flash lender:
- Flash mint from
lender
a very large amount of FOO. - Redeem FOO for BAR, causing
lender
to borrow fromunderwriter
all the way to its borrowing limit. - Trigger a debt rate increase in
underwriter
, makinglender
undercollateralized. - Liquidate the
lender
for profit.
Copyright
Copyright and related rights waived via CC0.