The fast blooming of the DeFi ecosystem pushed Aave, the leader in total value locked, to new record highs, as the lending protocol exceeded $300 million in flash loans since its creation. Aave went from $14 million in July to over $300 million, whereas a significant role plays the largest-ever transaction made on the platform in Dai from August 29, which is worth $14 million alone.
The rapid increase of flash loans on Aave uncovers the need for new financial products and enhanced liquidity, supplied through DeFi protocols.
Aave’s journey started in 2017 as Ethlend, but rebranded itself to Aave at the beginning of 2020. The protocol offers lending and borrowing capabilities. Recently, flash loans were introduced – these are loans that are being issued for the length of a single Ethereum block, which on average takes roughly around 15 seconds.
Flash loans are typically used by crypto traders in Ethereum arbitrage transactions, where traders purchase assets and sell them to another buyer for a higher price almost instantly, profiting from the price difference. Automated arbitrage deals help platforms like Uniswap and Balancer to be in-line with market prices. However, in order to successfully complete a loan, users have to repay the borrowed amount within a single block, or the transaction will fail.
“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. 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’s CEO Stani Kulechov stated.
The projects Kulechov noted, DeFi Saver and Furucombo, both strive to eliminate the technical coding skills for deploying the DeFi network on Ethereum’s blockchain. Also, some parts of the open-source code behind the smart contract for Ethereum can be connected or swapped, allowing for the “composability” of the projects. Furucombo, for example, allows users to transfer debt between some DeFi protocols like Maker and Aave without the need for processing multiple transactions and incurring high gas fees.
Meanwhile, Aave’s rapid development in 2020 comes with a further governance token issuing plan, dubbed “Aavenomics”. Also, Aave launched a form of credit delegation, which enables some users to cover loans using third-party liquidity providers.
As CryptoBrowser.io reported, Aave has taken the leading spot in the DeFi sector, with $1.51 billion total value locked (TVL) after obtaining an Electronic Money Institution (EMI) license from the UK’s Financial Conduct Authority. The TVL rate has now reached $1.6 billion, as visible in the image above.