simulating-flash-loans

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

1. Simple Arbitrage: Buy on DEX A, sell on DEX B
2. Triangular Arbitrage: A→B→C→A circular path
3. Liquidation: Repay debt, claim collateral bonus
4. Collateral Swap: Replace collateral without closing
5. Self-Liquidation: Efficiently close own position
6. 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.

Resources

• Aave V3 Flash Loans
• dYdX Flash Loans
• Balancer Flash Loans
• Flashbots Protect
• Free RPC Providers