- Aave has issued nearly $ 498 million in flash loans since their launch in January.
- Flash loans give tech-savvy users access to tens of millions of capital for a small fee, but only for seconds.
- Flash loans can be used for arbitrage transactions.
DeFi Aave lending and borrowing platform issued nearly half a billion dollars in flash loans this year, with users using the new financial tool to complete whale-sized transactions without providing any cash. guarantee.
Aave issued over $ 498 million in flash loans, increasing its dollar volume by over 55% during the month of September, according to to analytical data provider Aave Aavewatch.
Flash loans, which Aave made available nine months ago, allow DeFi users to pay a nominal fee to use assets bundled in Aave smart contracts for micro-term loans. The growing volume of loans shows just how much the nascent DeFi space has to offer when it comes to financial innovation.
DeFi is the abbreviation for decentralized finance, a system of automated protocols running on blockchain technology that allows financial activities, like taking loans or earning interest on deposits, without any centralized coordination by a third party. Instead, coded scripts called smart contracts execute user requests, reduce overheads and open new financial strategies.
Flash loans allow technically minded Aave users to take out multi-million dollar loans for a fee of less than 0.1%, provided they are able to repay the loan over the course of a single block of Ethereum transaction, which typically lasts less than 30 seconds.
They have a variety of uses, such as transferring low-cost loans from one department to another. But the most common application is for crypto-arbitrage, where a user buys an asset at a low price in one location, and then immediately sells the same asset at a higher price in a different location. Normally, arbitrage requires an existing capital pool, but flash loans allow anyone to access millions of capital if they can identify opportunities and develop the right code.
The large volume of loans already made shows that flash loans are an increasingly popular DeFi tool, but have also allowed bad actors to exploit other experimental projects, such as the recent hack of Eminence Finance. For better or worse, flash loans are having an impact on the world of DeFi, and we should expect even more activity as smart merchants devise more ways to leverage their newfound financial power.