Aave flash loans explained
An Aave flash loan needs no collateral, as long as it is repaid in the same transaction. Learn how it works, what it costs and what people use it for.
By Mark Ellis ยท Updated
A flash loan lets anyone borrow from an Aave pool with no collateral, on one condition: the money, plus a small fee, must come back before the same transaction ends. Here is how they work on Aave V3, what they cost and what they are for.
What a flash loan is
An ordinary Aave loan can stay open for months, so it must be backed by collateral worth more than the debt. A flash loan exists only inside one transaction. The borrower is a smart contract that receives the money, uses it and pays it back in one go:
borrow from the pool, use the money, repay it plus the fee
Because the loan never outlives the transaction, there is no collateral, no credit check and no interest. It can be any amount up to what is unborrowed in the pool. Taking one requires a smart contract, so the Aave documentation calls flash loans a feature for developers.
Why the pool cannot lose the money
An Ethereum transaction is all or nothing. If any step fails, every step is undone. At the end of a flash loan, the pool pulls back the amount it lent plus the fee. If that money is not there, the whole transaction is cancelled, including the loan itself.
So there are only two outcomes: the pool is repaid with the fee, or the money never left. The risk sits with the borrower. A cancelled transaction still pays its network fee (gas), so a failed attempt is not free.
A worked example: a liquidation
Take a liquidation, covered in how Aave liquidations work. A loan has fallen below a health factor of 1, and a liquidator may repay 100,000 USDC of it. The collateral is ETH, with a liquidation bonus of 5% (a round example figure). The liquidator holds no USDC, so their bot does this in one transaction:
| Step | Amount |
|---|---|
| 1. Flash borrow USDC | 100,000 USDC |
| 2. Repay that much of the debt and receive ETH, bonus included | ETH worth 105,000 dollars |
| 3. Sell the ETH | 105,000 USDC |
| 4. Return the loan plus the 0.05% fee | 100,050 USDC |
| 5. Left for the liquidator | 4,950 USDC |
Trading costs, gas and any protocol share of the bonus come off that. If the ETH had sold for less than 100,050 USDC, step 4 would have failed, everything would have been cancelled and the liquidator would have lost only the gas. Real events are on the liquidations page.
The fee and who receives it
Aave calls the fee the flash loan premium. It is a share of the amount borrowed, set once for a whole market rather than per asset. In October 2026 we read it straight from the contracts: 0.05% on Ethereum Core, and the same on the 16 other V3 markets we checked. Aave governance can change the premium by vote.
All of the premium goes to the Aave treasury, the rule since the Aave V3.4 upgrade in July 2025. Before that, part of it went to suppliers.
Some borrowers pay nothing. Governance can approve particular addresses, such as other DeFi apps' contracts, as flash borrowers, and they pay no premium when they use flashLoan. The fee is never waived on flashLoanSimple. For everything else Aave charges, see Aave fees explained.
Two ways to take one, and an on/off switch
- flashLoanSimple borrows one asset, must be repaid in the same transaction and costs a little less gas.
- flashLoan can borrow several assets at once. It also lets the borrower keep the money as an ordinary loan, if they have enough collateral. No premium is charged on the part kept, but it becomes normal debt with interest and a health factor.
Each reserve also has its own switch. Governance, or a risk admin it appoints, can turn flash loans on or off for it, and a paused asset cannot be flash borrowed. In October 2026, 294 of the 312 Aave V3 reserves listed by Aave's official API had flash loans on. The exceptions included every asset in the Horizon market for real-world assets, and the AAVE token on Ethereum Core. Every asset page on this site shows "Flash loans: Enabled" or "Disabled", for example USDC on Ethereum.
This guide is about Aave V3. In October 2026, Aave V4's published contracts had no flash loan function.
What flash loans are used for
- Arbitrage: buying a token where it is cheap and selling it where it is dearer, without the starting money.
- Liquidations: repaying someone else's unhealthy loan, as in the example above.
- Collateral swaps: changing the asset behind a loan without closing the loan first.
- Debt swaps: switching what you owe from one asset to another, a form of refinancing.
- Repaying with collateral: paying down your loan with your own collateral, to shrink a risky position before a liquidator does.
Ordinary users meet flash loans through the last three. In the Aave app, repay with collateral, collateral swap and debt swap run through adapter contracts that take a flash loan in the background, swap through an exchange aggregator and settle everything in one transaction.
Flash loans and DeFi exploits
Because anyone can borrow a large sum for one transaction, flash loans have been used to fund attacks on other protocols. In April 2022, for example, the Beanstalk protocol said an attacker had used a flash loan to exploit a previously unknown issue in its governance process, and that about 77 million dollars was stolen from its pools.
In cases like that, the flash loan is a tool, not the flaw. The bug was in the protocol being attacked, and the flash loan itself still had to be repaid within the transaction. For the risks that do apply to Aave, see is Aave safe?, and for unfamiliar terms, the Aave glossary.
Common questions
What is a flash loan on Aave?
A loan with no collateral that must be repaid, plus a small fee, within the same transaction. If it is not repaid, the whole transaction is cancelled, so the pool never loses the money.
How much does an Aave flash loan cost?
In October 2026 the fee, called the flash loan premium, was 0.05% of the amount borrowed on every Aave V3 market we checked, or 50 USDC on a 100,000 USDC loan. All of it goes to the Aave treasury, and governance can change it.
Can I use a flash loan without coding?
Not directly, because taking a flash loan needs a smart contract. But the Aave app's repay with collateral, collateral swap and debt swap features use flash loans behind the scenes.
Are flash loans used in hacks?
They have been used to fund attacks on other protocols, where the real flaw was in the protocol being attacked. The flash loan itself still has to be repaid in the same transaction, or everything is cancelled.