450,000 eth, worth about $150 million, is now being borrowed every day without requiring any credit score, proof of income, collateral, or any paperwork at all.
Instead through this very new invention of flashloans, the only requirement is that the entire amount borrowed can be paid in the same execution of all the actions.
Leading to a rising demand for this new feature which in just about two weeks has gone from 50,000 eth being borrowed a day to 450,000 eth.
That’s on just one dapp, Aave, which itself has seen a significant increase in assets under management at close to $400 million.
Those assets are in a smart contract, which is basically code running on some 10,000 ethereum nodes across the globe.
Other coders therefore can ‘talk’ to this smart contract and tell it they want say 1,000 eth to buy say some dai that is trading for $1 on a dex and sell it on another dex where it goes for $1.02.
The contract then ‘sees’ whether this action can be profitable, and if it is the ethereum nodes execute it, performing the function with the 1,000 returned to the contract once it is done, all in one block/execution.
So you’re not quite borrowing in the traditional sense of being given money to do with it what you want.
It is more instead a permissionless right to use the assets in the contract for very specific acts in return for the contract taking a fee after you hopefully make some nice profits through trading, arbitraging, or maybe even yield farming.
There have been cases were $30 million worth of eth has been borrowed in this way with it all costing just $100 and the time and skill to Solidity code the ‘talking’ to the smart contract.
Because each action is specific, there aren’t templates of how to do this so you have to learn to code with it unclear also how many flashloans are utilized in total because this feature was an accidental discovery and a byproduct of dYdX’s margin trading smart contract.
Aave saw that this can be a very useful feature and so made it a key differentiator for their own dapp, leading to decent statistics from them where half a million eth now is being used by the very poorest and they very rich on equal terms.