Simulating Flash Loans

Overview

This skill simulates flash loan strategies across major DeFi protocols (Aave V3, dYdX, Balancer) with profitability calculations, gas cost estimation, and risk assessment. It enables developers and researchers to evaluate flash loan opportunities without executing real transactions.

Prerequisites

Before using this skill, ensure you have:

Python 3.9+ with web3, httpx, and rich packages
RPC endpoint access (free public RPCs work fine)
Understanding of flash loan mechanics and DeFi protocols
Optional: Etherscan API key for better gas estimates

Instructions

Step 1: Configure RPC Endpoint

Configure your RPC in {baseDir}/config/settings.yaml:

# Free public RPCs (no signup required)
rpc_endpoints:
  ethereum: "https://rpc.ankr.com/eth"
  polygon: "https://rpc.ankr.com/polygon"
  arbitrum: "https://rpc.ankr.com/arbitrum"

Or use environment variable:

export ETH_RPC_URL="https://rpc.ankr.com/eth"

Step 2: Simple Arbitrage Simulation

Simulate a basic two-DEX arbitrage:

python {baseDir}/scripts/flash_simulator.py arbitrage ETH USDC 100 \
  --dex-buy uniswap --dex-sell sushiswap

This calculates:

Gross profit from price difference
Flash loan fee (provider-specific)
Gas costs
Net profit/loss

Step 3: Compare Flash Loan Providers

Find the cheapest provider for your strategy:

python {baseDir}/scripts/flash_simulator.py arbitrage ETH USDC 100 --compare-providers

Output shows: | Provider | Fee | Net Profit | |----------|-----|------------| | dYdX | 0% | $245.30 | | Balancer | 0.01% | $242.80 | | Aave V3 | 0.09% | $225.50 |

Step 4: Liquidation Profitability

Analyze liquidation opportunities:

python {baseDir}/scripts/flash_simulator.py liquidation \
  --protocol aave --health-factor 0.95

Shows positions below health factor threshold with:

Collateral value
Debt value
Liquidation bonus
Net profit after costs

Step 5: Triangular Arbitrage

Simulate multi-hop circular arbitrage:

python {baseDir}/scripts/flash_simulator.py triangular \
  ETH USDC WBTC ETH --amount 50

Analyzes path profitability:

Path: ETH → USDC → WBTC → ETH
Gross: +0.15 ETH
Fees:  -0.045 ETH (3 swaps)
Loan:  -0.045 ETH (Aave fee)
Gas:   -0.02 ETH
─────────────────────
Net:   +0.04 ETH ($101.73)

Step 6: Risk Assessment

Add risk analysis to any simulation:

python {baseDir}/scripts/flash_simulator.py arbitrage ETH USDC 100 --risk-analysis

Risk factors scored:

MEV Competition: Bot activity on this pair
Execution Risk: Slippage and timing sensitivity
Protocol Risk: Smart contract and oracle risks
Liquidity Risk: Depth available for trade size

Step 7: Full Analysis

Run complete analysis with all features:

python {baseDir}/scripts/flash_simulator.py arbitrage ETH USDC 100 \
  --full --output json > simulation.json

Output

The simulator provides:

Quick Mode:

Net profit/loss
Provider recommendation
Go/No-Go verdict

Breakdown Mode:

Step-by-step transaction flow
Individual cost components
Slippage estimates

Comparison Mode:

All providers ranked
Fee differences
Liquidity availability

Risk Analysis:

Competition score (0-100)
Execution probability
Protocol safety rating
Overall viability grade

Flash Loan Providers

| Provider | Fee | Best For | Chains | |----------|-----|----------|--------| | dYdX | 0% | Maximum profit | Ethereum | | Balancer | 0.01% | Pool tokens | ETH, Polygon, Arbitrum | | Aave V3 | 0.09% | Any token | ETH, Polygon, Arbitrum, Optimism | | Uniswap V3 | ~0.3% | Specific pairs | ETH, Polygon, Arbitrum |

Supported Strategies

Simple Arbitrage: Buy on DEX A, sell on DEX B
Triangular Arbitrage: A→B→C→A circular path
Liquidation: Repay debt, claim collateral bonus
Collateral Swap: Replace collateral without closing
Self-Liquidation: Efficiently close own position
Debt Refinancing: Move debt to better rates

Error Handling

See {baseDir}/references/errors.md for comprehensive error handling.

Common issues:

RPC Rate Limit: Switch to backup endpoint or wait
Stale Prices: Data older than 30s triggers warning
No Profitable Route: All routes lose money after costs
Insufficient Liquidity: Trade size exceeds pool depth

Examples

See {baseDir}/references/examples.md for detailed examples including:

ETH/USDC arbitrage simulation
Aave liquidation analysis
Multi-provider comparison
Historical backtesting

Educational Disclaimer

FOR EDUCATIONAL PURPOSES ONLY

Flash loan strategies involve significant risks:

Smart contract bugs can cause total loss
MEV bots compete for same opportunities
Gas costs can exceed profits
Protocol exploits may have legal implications

Never deploy unaudited code. Start with testnets. Consult legal counsel.

simulating-flash-loans