More than 100,000 eth have been borrowed in flashloans for the first time on Aave, the decentralized finance (defi) platform.
A cool $19 million dai was borrowed today, accounting for 86,000 eth, and in eth itself, more than 20,000 has been borrowed this July 5th.
The remaining circa 20,000 eth equivalent was in other tokens and stablecoins, sending this overtaking of the 100,000 line to 120,000 eth today.
This has affected interest rates on the platform, reaching as much as 60% on July the 2nd.
It is usually around 6% or 7% with Aave providing the highest interest rate among these listed projects which don’t include the newer dapps of Curve, Balancer and the like.
Yet probably because of flashloans it seems to have temporary jumps as demand suddenly rises for supply.
Flashloans as you may know are a very new way of borrowing without providing any capital, credit rating score, income, or indeed anything at all.
There is only one condition that has to be satisfied: that the whole borrowed amount can be paid back in the same block.
Then the only other condition that has to be satisfied is coding skills, knowing how to Solidity or nowadays even pythonesque Vyper.
You can’t template this borrowing because one needs to specify conditions, like borrow 100 dai, buy eth on some dex, sell it on some other dex, buy the 100 dai to pay it back, and hopefully you get some profit to keep yourself, all in one block.
The ethereum network obviously knows whether all the necessary conditions are satisfied once the code is published, and then decided to execute or not execute, so by one block is meant one execution at once.
You can see above each dot is a flashloan. We’ve highlighted a nice 2,000 eth one, and if we wanted to we could now go to the blockchain and see what this guy did with this 2,000 eth.
What is still difficult to wrap your head around and quite amazing is that he got this 2,000 eth without putting down any money whatever. For free basically, well minus the borrowing interest rate or fee which presumably would have to come from profits.
These flashloans have began only this March at about 20,000 eth a day, and it took until May to get to 40,000.
In the past couple of days however it has jumped to 120,000 eth of ‘free’ money that people are taking and using.
That’s presumably because more are learning how to do it, which shouldn’t be too hard as even we probably can learn it and we’re more of words than code.
Also perhaps because it takes some time to study how to use them, what is the whole scene, what are liquidity pools.
The latter even we don’t grasp fully, but they’re the ‘pots’ of assets in the ‘underground’ that makes everything else run on top.
It’s they that give you this money for your flashloan and they are also the ones that get the fee or interest rate from your profits.
As more and more learn flashloans and how to use them, you’d expect their usage to lead to more liquidity in dex-es and brokers like Uniswap, as well as more demand for borrowable assets, and thus more interest for lenders, and so we effectively have a financial system, our financial system.
For now it’s all bleeding edge really, not yet at cutting edge, but this is an astonishing innovation, and it is one thing you can say for certain that you can do on ethereum but not anywhere else.
Making this perhaps the first native new thing that has come out of this space since bitcoin itself, and thus potentially marking the beginning of a new stage for ethereum.