Flash loans on Aave have proven a popular use case for the DeFi project, data shows, with over $300 million in such loans issued so far.
Flash Loans Gain Steam on Aave
Aave, the open-source and non-custodial protocol to earn interest on deposits and borrow assets, is setting records with its flash loan feature. The platform allows users of its protocol to earn interest on deposits and borrow assets.
Data from Aavewatch, a site that tracks on-chain data on the Aave platform, shows the project has issued over $300 million in flash loans since inception. But what’s notable is that this was just over $14 million in July, with the rest trickling in the past week as the broader DeFi landscape dominated over the crypto space. On August 29 alone, an address took out a $14 million flash loan from Aave, the largest ever on the platform.
For the uninitiated, flash loans are the first uncollateralized loan option in DeFi. They are designed for developers, Flash Loans enable you to borrow instantly and easily, no collateral needed provided that the liquidity is returned to the pool within one transaction block, as per Aave.
Born as ETHLend and rebranded to its current form Aave, offers crypto lending and burrowing facilities for users on its platform. But flash loans are its unique selling proposition — these are loans provided only for the duration of a single Ethereum block, about 15 seconds.
Flash Loans 101
With the explanation above, one would question: What’s the need for a loan lasting just 15 seconds.
As per Coindesk, these flash loans provide people with the ability to borrow crypto without relinquishing any collateral. They are majorly used by traders on Ethereum who can arbitrage any asset mispricing, meaning purchasing at a given price and immediately selling it to another buyer at a higher price using an automated smart contract.
Aave CEO Stani Stani Kulechov further explained the feature to crypto publication Decrypt:
“The biggest consumer of flash loans is DeFi Saver, allowing users to change borrowed collateral using flash loans instead of paying back and taking out new loans separately, quite an interesting functionality.”
He added the project has also increased flash loan activity from arbitrageurs using flash loans to make their operations more efficient, and lately Furucombo, which allows users to try flash loans without coding, has taken off.