Aave has issued more than $300 million of flash loans since its launch this year. These loans are commonly used by arbitrage traders to earn a profit.
The DeFi lending platform has been making noise in the DeFi space lately. It is currently ranked as the leading DeFi protocol in terms of total value locked (TVL). On August 29, Aave successfully granted the stable coin Dai a flash loan amounting to $14 million, which is so far the biggest transaction of its kind to be made on the platform.
Aave loans can only be issued if the borrower can pay the borrowed amount within one block. The flash loan application will fail if the borrower does not repay his or her debt before the end of the transaction.
Traders commonly use flash loans in scripted Ethereum arbitrage transactions. This allows traders to profit by purchasing and immediately selling the asset to a different borrower at a higher price.
Stani Kulechov, the CEO of Aave, said in an interview,
We also have 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.
Aave is an open-source and non-custodial protocol, which means that there is no third party in control of the DeFi platform. It has its own native token called LEND, which provides token holders various advantages such as fee deductions as well as rewards that can be used for staking.