Exploring Flash Loans Usage on Aave and Compound Finance

Flash loans are uncollateralized loans that have become popular on the Ethereum network and among several decentralized finance (DeFi) protocols. Normal loans are loans where a lender lends money and eventually receives payment from a borrower. The lender makes a profit for temporarily parting with its money.

A flash loan is like a traditional loan, but it has the following unique characteristics:

  • Powered by Smart Contracts: Using smart contracts, flash loans ensure that funds don’t change hands unless certain conditions are met. In the case of a flash loan, the borrower must repay the loan before the transaction closes, otherwise the smart contract reverses the transaction.
  • Unsecured – By repaying the loan immediately, the borrower does not need to put up collateral.
  • Innovative – Flash are innovative and they are built to enable instant trades. There is no comparison to these loans on traditional finance.

Compound and Ave are two of the most popular cryptocurrency lending protocols with competitive rates. These two protocols allow investors to borrow funds against their idle crypto tokens as collateral or lend their cryptocurrency for fairly competitive rates. Avenue is a newer platform with a few unique features that Compound lacks and has grown very rapidly in popularity in the past year.

In this article, we will examine how flash loans have been used in AAVE and Compound Finance in the past six months.

In the chart, we show the amount of flash loans borrowed on Aave and Compound Finance during the past 6 months. The charts show that Flash loans are more popular on Aave than Compound Finance. Moreover, the most amount of flash loans were borrowed in July 2021.

Now let’s look at how many unique borrowers used Flash Loans over the past six months. Aave has ten times the number of unique borrowers as Compound Finance.

Listed below are the top 10 currencies pools on Aave and the amount borrowed from each. Data is sorted based on how much has been borrowed from each currency pool.

Listed below are the top 10 currencies pools on Compound Finance and the amount borrowed from each. Data is sorted based on how much has been borrowed from each currency pool.

Conclusion

In this post we learned about the basics of flash loans and how they are used in Aave and Compound finance. Here are a few observations.

  1. Aave’s Flash Loans volume is more diverse and popular than Compound Finance’s 
  2. Based on the last 6 months’ volume, we see approximately 60% to 40% of loans originated through Aave and 40% through Compound Finance
  3. Most of the flash loan borrowers use DAI and USDC currencies. Loans on Compound Finance are sourced using DAI, whereas Aave borrowers used a variety of currencies including USDC, USDT, WBTC, and WETH.

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