Aave is the first protocol in the crypto field to propose the concept of "flash loan". Flash loans allow users to take out loans without any collateral. In this unsecured loan transaction, borrowing and repayment need to be completed within one block. Currently, Ethereum’s block generation speed is about 12 seconds. Completing all operations in such a short period of time is indeed “lightning-fast” compared to ordinary lending.

The name is also associated with the 2014 novel Flash Boys: A Wall Street Revolt by American author Michael Lewis. The book tells the story of a group of Wall Street high-frequency trading firms who made huge profits by using high-speed computer algorithms and technical means to trade stocks in milliseconds.

Due to the characteristics of the blockchain, the transaction records in a block will only become a "verified fact" when they are packaged out of the block. If a user has no repayment record in the same block after borrowing money, the corresponding loan will be automatically canceled, which is equivalent to no actual lending behavior taking place.

This is why flash loans do not require collateral: if there is no repayment, the loan does not count, and the funds will automatically be rolled back to the original location.

The emergence of flash loans has made the cost of obtaining liquidity very low, because only one GAS fee and a 0.09% flash loan protocol fee need to be paid during the entire transaction process. It is therefore commonly used for arbitrage.

However, since flash loans need to complete all operations within one block, ordinary users and manual operations cannot achieve this. Codes are required to complete flash loan operations, so the threshold for use is relatively high. In addition, the characteristics and flexibility of flash loans that do not require collateral have also allowed some malicious actors to use them to do evil, which has brought some negative market opinions to flash loans.