Key Takeaways
- Cream Finance’s Iron Bank will enable protocol-to-protocol flash loans.
- Binance Smart Chain and Fantom users will also be able to leverage flash loans through the protocol.
- Flash loans are one of DeFi’s most radical innovations, but they’ve been very divisive.
Cross-protocol flash loans are coming to Cream Finance.
Protocol-to-Protocol Flash Loans on Cream Finance
The lending protocol will allow other protocols to borrow from its pools through its Iron Bank feature. The Iron Bank currently has over $337.9 million in Total Value Locked (TVL). It’s currently integrated with Alpha Homora V2 and Yearn Finance’s Vaults.
Cream is the first project to enable cross-protocol flash loans.
Leo Cheng, co-founder and project lead at Cream Finance, spoke of the benefits the feature will offer DeFi users. He said:
“Bringing protocol-to-protocol flash loans to DeFi will increase capital efficiency and provide deeper liquidity for traders looking to access more lucrative lending services across a wider variety of digital assets.”
As it will work in Yearn Finance, strategists will have the ability to use the flash loans to optimize returns on their assets at lower costs (Yearn Finance integrates several protocols, saving users gas fees). In addition to the Ethereum ecosystem, the instant loans will also be available on Binance Smart Chain and Fantom through Cream V1.
Notably, flash loans on Cream will incur a 0.03% fee—a fraction of the cost of using Aave and Uniswap. It will also include liquidity provider tokens.
Flash loans allow a trader to borrow an unlimited amount of capital without providing any collateral, as long as they pay back the debt in the same transaction. They’re frequently used in profit-making strategies like arbitrage and collateral swapping.
They’re also controversial. Flash loans have played a central role in some of DeFi’s biggest attacks. Since Aave pioneered the innovation in early 2020, millions have been lost through hackers leveraging flash loans to capitalize on smart contract exploits.
This year, Cream Finance has seen rapid growth, briefly halted by an Alpha Finance exploit in February (Alpha integrates Cream, which led to some confusion surrounding the root cause). ALPHA and CREAM plummeted when news of the exploit broke, and Cream’s TVL dropped around 70%. CREAM’s market cap is around $103.1 million today. It’s trading at $152.47.
Disclosure: At the time of writing, the author of this feature owned ETH, ALPHA, AAVE, and several other cryptocurrencies. They also had exposure to UNI in a cryptocurrency index.
