In this post I will explain how to get flash loan in crypto from scratch. Before I start with all details short disclaimer that everything you read is not a financial advice, you should know that is always some risk and feel free to make your own research about lending platforms and how to borrow crypto. All information that I will provide is from my own experience.
Crypto market is very unstable and price very often is going dramatically up or down. It is very hard to predict when price will go dramatically down (crypto price crash) or up (crypto bull run). Because of that I like to borrow crypto when price is gone down and expect that soon will go up. Also you can borrow crypto for some other reasons. There are some risks and I will explain later in post what you should watch carefully. I use trusted Aave lending platform. To be able to borrow crypto and get flash loan you first need to make some crypto deposit as collateral. Depends how much your collateral is you will be able to borrow amount in crypto. But before you can start you need to prepare special wallet called Metamask, deposit some crypto inside wallet and connect it with lending platform.
How to prepare Metamask for lending platform?
To be able to interact with lending platform you need to install a special wallet, browser extension for DeFi (decentralized finance). You can download it from official Metamask website. If you are new about Metamask, DeFi and smart contracts I suggest to read my post Metamask and smart contracts: how it works?
After you have installed Metamask wallet you need to do some settings. The most important is to add a network. Click on the account avatar – settings – networks and at the bottom choose Add network. Then enter information provided in the next screenshot.
Next step is to change network at the top from Ethereum Mainnet (by default) to the new created network (Matic network). Reason why I suggest to use a Matic (Polygon) network are very low fees, close to zero. Ethereum fees are very high, every time when you interact with Metamask you need to pay high fees: in Ethereum network at least $20, sometimes even more than $100, while in Matic network only a few cents, sometimes even less than 1 cent!
Before you can interact with lending platform you need to deposit some Matic coins to your Metamsk wallet. I suggest to use Binance crypto exchange platform. There you can deposit lots of coins and exchange it for Matic. You need to be careful and choose the right withdrawal network.
When you made deposit you are ready to start and interact with lending platform. As you can see somewhere you will see word Matic and somewhere Polygon. On the Binance crypto exchange platform you will see the both words because Matic is rebranding to Polygon. You can find Matic token on the Ethereum blockchain too and you need to be careful about this. You can also switch Matic token between Ethereum and Polygon blockchain as I presented in the video How to move crypto from Ethereum to Polygon. Because of high transaction and smart contract fees I use Binance but from time to time is problem that Matic withdrawals are temporary suspended. You need to check this before you make attempt to send Matic tokens using Binance. If you dont want to use a centralized crypto exchange platform such as Binance you can swap tokens via Polygon bridge but you should know that fees are very high. Notice: when you doing a swap for the first time you already should have some Matic inside Polygon blockchain because fees will be required to be paid from Matic token. That is reason why I recommend to use a Binance crypto exchange platform.
The other solution to get a Matic token is to use ChangeNow service. If you dont know anything about this crypto exchange service that dont require registration and where you can anonymously without any verification or restrictions exchange many cryptocurrencies feel free to read my tutorial with two crypto exchange examples described inside my post: How to exchange crypto without registration and verification. You can also use widget placed on the top right on this blog (you will be redirected to ChangeNow website).
How to start with lending platform?
As I already mentioned at the begin of this post I use Aave lending platform. Just click the link (visit website) and then Metamask will interact with website asking to connect with. Notice that you need to choose Polygon network inside Aave lending platform. After you have connected your wallet with lending platform you are ready to get flash loan in crypto. To be able to borrow crypto you need to make a deposit. I usually borrow about 40-45 % on my deposit. That means if you deposit $1000 – recommend to borrow about $400-450 to keep a good health factor. When you just start I recommend to see how it works deposit firstly some small amount something like $100. The maximum amount that you can borrow will give you 1.3 health status. More details about risks I will describe later in post. You can choose different currencies. On the deposit and borrow sections you can see which one are currently available. I use to deposit Matic, borrow USDC stablecoin. Then I buy more Matic with USDC and deposit to lending platform to increase my health factor. Of course you can choose other currencies. How it looks in real time you can see in my next video including: deposit, borrow, crypto exchange inside Polygon via Quickswap.
Crypto exchange inside Polygon blockchain
You can exchange different crypto inside Polygon without needs to send crypto outside the wallet. On this way you can also trade crypto without needs to use a centralized crypto exchange platforms. How it works you can see in the video above. My strategy is to buy crypto with stable coin (USDC) when price is down and then sell it when price go up. After sale I use this stable coin to repay loan. An official Polygon exchange is on the next link: QuickSwap exchange.
Crypto borrow risks
As I mentioned crypto market is very unstable and you never know what will be the next: will price go up or down, slowly or maybe some dramatically changes will happen. There are many possibilities but people mostly borrow stable coins and use it to buy more crypto. After price goes up use it to repay loan (after made a sale with higher price). On this way traders dont need to sell their crypto – they are playing with borrowed crypto. Pretty cool but there are some risks especially if price goes down dramatically. In that case is important to keep health factor above 1 – mostly I dont want to fall under 1.5. To be able to keep it in green area and avoid liquidation (additional fees) there are two possibilities: deposit more crypto or repay loan. The both activities will increase the health factor.
Why to borrow crypto?
To get a loan from bank very often is too complicated, especially if you dont have a regular job. If you are employed for a specific time period you probably will not get loan from bank. Also when you get a loan bank interest rate is much higher in compare with crypto lending platforms. You will need to repay much higher amount to bank. To get a flash loan in crypto from lending platform you need to make some deposit but you will also earn some interest rate on it. Also for using crypto lending platforms you will get some rewards which you can claim it whenever you want. The big advantage is that you can choose when you want to repay loan. If crypto market dramatically goes up you can repay loan in one day or you can do it 6 month later if market goes down.
I have very good experience with crypto lending platforms. There are always some risks but mostly I made plus with this strategy. There is no any guarantee but it is a good way to increase crypto portfolio. I suggest to use a hardware wallet connected to Metamask wallet. Also I suggest to make a new account inside Ledger Live and Metamask and isolate it from your main account which you use for store. If you are beginner in crypto please made your own research and read my post about How to use a hardware wallet.
For advanced users recommend to read my post The best protection for crypto assets where I described how to setup different accounts inside Ledger Live using one additional word for seed (recovery phrase) to increase security from 24 word to 25 word seed.
I hope this post is useful for you no matter if you are beginner in crypto or you already have some experience. If you have any questions, suggestions or think that I should something add / change in this post feel free to place a comment.