Introduction

Flash loans are a powerful feature in decentralized finance (DeFi), allowing users to borrow large sums of assets without collateral, as long as they repay the loan within the same transaction. In this guide, we will build a CrossFi-based flash loan protocol step by step.

By the end of this tutorial, you'll understand:

• How flash loans work on CrossFi.

• How to create a flash loan smart contract.

• How to interact with the contract using Web3.

• How to deploy and test it.

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1. Understanding Flash Loans

A flash loan allows users to:

• Borrow tokens from a liquidity pool.

• Use the funds for arbitrage, liquidations, or other strategies.

• Repay the loan plus fees within the same transaction.

• If not repaid, the transaction fails and is reverted.

CrossFi's smart contract system ensures this process happens atomically, meaning everything is executed in one go or not at all.

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2. Setting Up Your Development Environment

Prerequisites

Ensure you have the following installed:

• Node.js & npm (for scripting)

• Hardhat (for development)

• Solidity (smart contract language)

• MetaMask (to interact with the network)

• CrossFi Testnet faucet (for test tokens)

Project Structure

crossfi-flashloan/
│── contracts/           # Smart Contracts
│   ├── FlashLoan.sol    # Flash loan logic
│── scripts/             # Deployment scripts
│── test/                # Testing files
│── hardhat.config.js    # Hardhat configuration
│── package.json         # Dependencies
└── README.md            # Documentation

Installing Dependencies

mkdir crossfi-flashloan && cd crossfi-flashloan
npm init -y
npm install --save-dev hardhat ethers dotenv @nomiclabs/hardhat-ethers

Next, initialize Hardhat:

npx hardhat

Choose "Create an empty hardhat.config.js" when prompted.

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3. Writing the Flash Loan Smart Contract

Creating the Contract File

Inside the contracts/ folder, create FlashLoan.sol and add the following code:

// SPDX-License-Identifier: MIT
pragma solidity ^0.8.20;

import "@openzeppelin/contracts/token/ERC20/IERC20.sol";

contract FlashLoan {
    address public owner;
    IERC20 public loanToken;
    uint256 public feePercentage = 5; // 5% fee

    constructor(address _token) {
        owner = msg.sender;
        loanToken = IERC20(_token);
    }

    function requestFlashLoan(uint256 amount) external {
        uint256 balanceBefore = loanToken.balanceOf(address(this));
        require(balanceBefore >= amount, "Not enough liquidity");

        loanToken.transfer(msg.sender, amount);

        (bool success, ) = msg.sender.call(
            abi.encodeWithSignature("executeOperation(uint256)", amount)
        );
        require(success, "Callback execution failed");

        uint256 fee = (amount * feePercentage) / 100;
        uint256 totalRepay = amount + fee;
        require(
            loanToken.balanceOf(address(this)) >= balanceBefore + fee,
            "Loan not repaid"
        );
    }
}

How This Works

• The contract holds liquidity in an ERC-20 token.

• requestFlashLoan(): Sends tokens to the borrower.

• Calls executeOperation() on the borrower contract.

• Checks if the loan is repaid + a 5% fee.

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4. Creating the Borrower Contract

Now, create Borrower.sol inside the contracts/ folder:

// SPDX-License-Identifier: MIT
pragma solidity ^0.8.20;

import "@openzeppelin/contracts/token/ERC20/IERC20.sol";

contract Borrower {
    address public flashLoanProvider;
    IERC20 public loanToken;

    constructor(address _flashLoanProvider, address _token) {
        flashLoanProvider = _flashLoanProvider;
        loanToken = IERC20(_token);
    }

    function initiateFlashLoan(uint256 amount) external {
        FlashLoan(flashLoanProvider).requestFlashLoan(amount);
    }

    function executeOperation(uint256 amount) external {
        require(msg.sender == flashLoanProvider, "Unauthorized");

        // Perform arbitrage or liquidation logic here

        uint256 fee = (amount * 5) / 100;
        uint256 repayAmount = amount + fee;
        loanToken.transfer(flashLoanProvider, repayAmount);
    }
}

How This Works

• The borrower requests the flash loan.

• Implements executeOperation() where the funds are used.

• Repays the loan + 5% fee to the lender.

---

5. Deploying the Contracts

Configuring Hardhat

Open hardhat.config.js and update it:

require("@nomiclabs/hardhat-ethers");

module.exports = {
  networks: {
    crossfi: {
      url: "https://rpc.crossfi.io",
      accounts: [process.env.PRIVATE_KEY]
    }
  },
  solidity: "0.8.20",
};

Create a .env file for security:

PRIVATE_KEY=your-wallet-private-key

Deployment Script

Inside the scripts/ folder, create deploy.js:

javascriptCopyEditconst { ethers } = require("hardhat");

async function main() {
  const [deployer] = await ethers.getSigners();
  console.log("Deploying contracts with:", deployer.address);

  const Token = await ethers.getContractFactory("YourToken");
  const token = await Token.deploy();
  await token.deployed();
  console.log("Token deployed to:", token.address);

  const FlashLoan = await ethers.getContractFactory("FlashLoan");
  const flashLoan = await FlashLoan.deploy(token.address);
  await flashLoan.deployed();
  console.log("Flash Loan deployed to:", flashLoan.address);

  const Borrower = await ethers.getContractFactory("Borrower");
  const borrower = await Borrower.deploy(flashLoan.address, token.address);
  await borrower.deployed();
  console.log("Borrower deployed to:", borrower.address);
}

main()
  .then(() => process.exit(0))
  .catch(error => {
    console.error(error);
    process.exit(1);
  });

Deploying to CrossFi

npx hardhat run scripts/deploy.js --network crossfi

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6. Testing the Flash Loan Execution

To initiate a flash loan, call:

await borrower.initiateFlashLoan(ethers.utils.parseUnits("100", 18));

Check if the flash loan is successfully repaid:

const balance = await token.balanceOf(flashLoan.address);
console.log("Flash Loan Contract Balance:", balance.toString());

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Final Thoughts: How Everything Works

• The Flash Loan contract holds liquidity.

• A borrower contract requests a loan (without collateral).

• The flash loan is executed within the same transaction.

• The borrower performs arbitrage or other actions.

• The loan is repaid with a 5% fee.

• If repayment fails, the transaction reverts (ensuring security).