---
title: "Creating a flash loan using Aave"
description: "Definitions, Uses, and Developer Walkthrough"
---

## Introduction

In this tutorial, we will: 

- Create and deploy a Flash loan smart contract
- Receive funding with the liquidity protocol called [Aave](https://aave.com/) 
- Transact with our deployed contract to execute a Flash loan

Before we begin, let's look at each of the building blocks of this project: 

## What is a flash loan?

In traditional finance, borrowers many times are required to offer collateral to receive a loan. This collateral is usually in the form of an asset like a car or home. Banks use this collateral as security to cover losses if the borrower fails to pay. 

In the world of [Decentralized Finance\(DeFi\),](https://www.alchemy.com/defi?a=af3d1feda6) a borrower can receive a loan without the need for providing collateral by using flash loans.

In a flash loan, lenders can both provide a loan to a borrower and be paid back for that loan in a single transaction. This is possible because of the time that a transaction is started and when it is finally committed to a block on the blockchain. 

Here are the steps of a flash loan: 

1. Borrower executes a Flash loan smart contract

2. A flash loan contract requests a loan amount from the liquidity pool 

3. The contract then uses loan funds to execute defined operations \(eg trading on an exchange\) 

4. After operations are completed, the borrowed funds are returned to the liquidity pool 

5. The transaction is committed to the blockchain 

Smart contracts allow us to validate that: 

- The flash loan has the required funds to perform the operations in the smart contract. 
- The operations are complete before the transaction is added to a new block 
- The operations do not result in a loss of funds for the borrower. 
- The lending pool is paid back the correct amount \+ a transaction fee for using the protocol. 

The borrower can do whatever they like with the funds as long as the lender is paid back the corrected lent amount. Some popular use cases of Flash Loans are: 

 - _Trading Arbitrage _- taking a token from one exchange to another exchange with a higher value to make a profit

 - _Collateral Swap_ - swapping tokens of collateralized loans to another token as collateral for an existing loan

 - _Self-Liquidation_ - repaying a collateralized loan by swapping tokens and repaying the flash loan 

Before a flash loan contract executes, the contract needs to be funded. Flash loan funding typically comes through one main lending protocol, [Aave](https://www.alchemy.com//blog/alchemy-x-aave-customer-story). 

The mechanisms of a flash loan allow for easy borrowing because they do not require any collateral. This feature can also open a flash loan up to attackers that perform flash loan attacks. A flash loan attack is when a borrower borrows some funds, manipulates the price of the asset, and then returns the borrowed asset at a large profit to themselves. This is usually done either by compromising the pricing [oracle](https://www.alchemy.com/overviews/what-is-an-oracle) or creating artificial movements in the market. Choosing decentralized oracles like [Chainlink](https://openzeppelin.com/) and auditing smart contracts through services like [OpenZepplin](https://remix.ethereum.org/) are steps to prevent these types of attacks. 

 

## What is Aave?

With traditional loans, banks provide funding. In DeFi, the [Aave](https://www.alchemy.com/dapps/aave) Protocol is the largest source of funding for flash loans. Aave allows users to supply liquidity pools of [ERC20](https://www.alchemy.com/overviews/erc20-solidity) Tokens. Borrowers can then use these pools to receive loans. Depending on the type of loan, borrowers pay an interest rate which goes to the suppliers to receive interest on the tokens they supply. Currently the Aave protocol also charges a transaction fee of 0.09%.   

Let's look at how all these concepts come together to create a flash loan: 

## Requirements

 - Access to [Remix IDE ](https://remix.ethereum.org/)

- Creation of a[ Metamask Wallet ](https://metamask.io/download/)

- Access to the [Github Gists - Smart Contract Code ](https://remix.ethereum.org/)

### Getting the smart contract code

1 \) Open up a new workspace in the [Remix IDE](https://www.alchemy.com/dapps/remix). 

2\) In a separate tab, open up the Github Gists [here](https://gist.github.com/DappaDanDev/3f4d8247b505f6226b0be04853696a50). This contains the smart contract code that we will use to create our flash loan. 

3\) Create new contract files in the Remix IDE with the exact naming below and copy and paste the code connected to that file \(6\): 

- Flashloan.sol 

- FlashloanRecieverBase.sol

- IFlashLoanReciever.sol

- ILendingPool.sol

- ILendingPoolAnddressesProvider.sol

- Withdrawable.sol

<ImageBlock
  src="https://media.alchemy.com/1703766807-new-contract-files-in-remix-ide.png"
  alt="New contract files in Remix IDE"
  width={316}
  height={140}
/>

### About the contracts

_Flashloan.sol _- This is the flash loan smart contract. It contains an ExecuteOperation function that the contract

will call to complete the operations that will use the funds from the loan. 

_FlashLoanRecieverBase.sol / IFlashLoanReciever.sol_   - This is what allows the contract to receive funds for the flash loan

_ILendingPool.sol / ILendingPoolAddressProvider.sol_  - Points to the Aave lending pools that will fund the flash loan

_Withdrawable.sol _- Allows for other contracts to withdraw funds from this contract in the case of incorrect or stuck funds 

‍

### Add funds to wallet

We will be using the Kovan Test Network in order to deploy and execute our flash loan contract. We need to have funds in our wallet in order to do this successfully: 

1. Go to [https://faucets.chain.link/kovan](https://faucets.chain.link/kovan)

2. Enter your Wallet Address: 

- [How to get your wallet address ](https://metamask.zendesk.com/hc/en-us/articles/360015289512-How-to-copy-your-MetaMask-account-public-address-)

- Select the Kovan Network on your Metamask Wallet 

<ImageBlock
  src="https://media.alchemy.com/1703767058-kovan-network-metamask-wallet.png"
  alt="Kovan Network on Metamask Wallet"
  width={356}
  height={133}
/>

3. Make sure to select .1 Test Eth

<ImageBlock
  src="https://media.alchemy.com/1703767106-test-eth.png"
  alt="Chainlink Kovan faucet form: requesting 0.1 test ETH"
  width={962}
  height={219}
/>

4. Wait for confirmation that the tokens have been transferred

5. Funds should be added to your Metamask Wallet 

‍

### Deploy the contract

Now that we have some funds in our wallet, it is now time that we deploy the smart contract to the Kovan Testnet so that we can execute and interact with it. 

1\) Go to the [Solidity](https://www.alchemy.com/overviews/solidity) Compiler on the side panel inside Remix

<ImageBlock
  src="https://media.alchemy.com/1703767143-remix-side-panel.png"
  alt="Solidity Compiler on the side panel inside Remix"
  width={48}
  height={39}
/>

2\) Use the settings below: 

Compiler: 0.6.6\+comitt.6c…

Language: Solidity

EVM Version: Default

Compile Flashloan.sol

<ImageBlock
  src="https://media.alchemy.com/1703767171-solidity-compiler.png"
  alt="Remix Solidity compiler settings for compiling Flashloan.sol"
  width={310}
  height={584}
/>

4\) Click 'Compile' - You may receive some warnings but no errors if done successfully 

‍

After compiling the flash loan smart contract, we need to deploy it: 

1\) Go to the 'Deploy and Run Transactions' tab

<ImageBlock
  src="https://media.alchemy.com/1703767202-deploy-and-run-transactions-tab.png"
  alt="Remix sidebar icon for the Deploy and Run Transactions tab"
  width={43}
  height={37}
/>

2\) Use the following settings: 

**Environment:** Injected Web3

**Account**: Copy and Paste Your Kovan Wallet Address

**Contract:** Flashloan - contracts/Flashloan

<ImageBlock
  src="https://media.alchemy.com/1703767238-deploy-and-run-transactions.png"
  alt="Remix Deploy and Run Transactions panel with Injected Web3 environment selected"
  width={302}
  height={573}
/>

3\) Add the Lending Pool Contract as the address_addressProvider: 0x506B0B2CF20FAA8f38a4E2B524EE43e1f4458Cc5 . This is the address for the lending provider for Aave. You can find other contract addresses [here](https://docs.aave.com/developers/v/1.0/deployed-contracts/deployed-contract-instances). ‍

<ImageBlock
  src="https://media.alchemy.com/1703769249-address-provider.png"
  alt="Remix deploy panel: entering the Aave lending pool address as address_addressProvider"
  width={281}
  height={52}
/>

4\) Click 'Deploy’

5\) Metamask should popup for you to 'Confirm' the transaction. Inside your terminal, you’ll see the link to view your transaction on etherscan.

<ImageBlock
  src="https://media.alchemy.com/1703769328-etherscan-transaction.png"
  alt="Remix terminal showing the Etherscan link for the contract deployment transaction"
  width={1061}
  height={75}
/>

 

### Add funds to the flash loan

Our smart contract has now been deployed to the Kovan Test Network. We will need to add funds to the contract from the testnet lending pool of Aave. 

1. Go to this page: [https://staging.aave.com/?marketName=proto_kovan](https://staging.aave.com/?marketName=proto_kovan)

2. Connect Your Metamask Wallet 

3. Make sure that you’re using the 'Kovan Ethereum Market'. There will be a small 'K'

<ImageBlock
  src="https://media.alchemy.com/1703767318-kovan-ethereum-market.png"
  alt="Aave market selector showing the Kovan Ethereum Market"
  width={470}
  height={54}
/>

**Note**: You may need to enable ‘Testnet mode’ in your settings. 

<ImageBlock
  src="https://media.alchemy.com/1703767345-testnet-mode.png"
  alt="Aave settings menu with the Testnet mode toggle enabled"
  width={258}
  height={243}
/>

4. Supply some test Eth to Aave by clicking on the ‘Supply’ button under ‘Assets to supply’ . We can start with .001

<ImageBlock
  src="https://media.alchemy.com/1703767377-assets-to-supply.png"
  alt="Aave Assets to supply panel: supplying test ETH with the Supply button"
  width={747}
  height={346}
/>

5. Then borrow some DAI by clicking on the ‘Borrow’ button next to DAI. Borrow 10 DAI. 

<ImageBlock
  src="https://media.alchemy.com/1703767451-borrow-dai.png"
  alt="Aave borrow panel: clicking the Borrow button next to DAI"
  width={739}
  height={101}
/>

6. Metamask should open up to confirm the transaction and the DAI will show up in your wallet once the transaction is complete:

<ImageBlock
  src="https://media.alchemy.com/1703767494-metamask-transaction.png"
  alt="MetaMask wallet balance showing borrowed DAI alongside ETH"
  width={355}
  height={214}
/>

7. If this is the first time receiving DAI, you will need to set up your wallet so that you can see DAI in your wallet.

- Go to ‘Import Tokens’ inside Metamask 

<ImageBlock
  src="https://media.alchemy.com/1703767533-metamask-import-tokens.png"
  alt="MetaMask menu with the Import Tokens option for adding DAI"
  width={181}
  height={63}
/>

- Enter the DAI contract address for Kovan: 0xFf795577d9AC8bD7D90Ee22b6C170349

 8. Once you have DAI inside your wallet, send 10 DAI to your deployed contract. You can get your deployed contract address by copying it from Remix:

<ImageBlock
  src="https://media.alchemy.com/1703767579-deployed-contract-address.png"
  alt="Remix deployed contracts panel: copying the flash loan contract address"
  width={300}
  height={97}
/>

Then send it to the address using Metamask: 

<ImageBlock
  src="https://media.alchemy.com/1703767612-send-tokens-metamask.png"
  alt="MetaMask send screen: transferring DAI to the deployed flash loan contract"
  width={354}
  height={380}
/>

### Execute the flash loan contract

Now we need to call Aave’s KovanTestnet DAI contract to indicate what asset we will be using in order to execute the smart contract.

1. Go back to your Remix IDE and to the 'Deploy & Run Transactions' tab

2. Under 'Deployed Contracts' you will see your flash loan and contract address 

<ImageBlock
  src="https://media.alchemy.com/1703767645-flash-loan-and-contract-address.png"
  alt="Deployed Contracts' flash loan and contract address "
  width={288}
  height={338}
/>

3. Go to the text field labeled ‘address asset’ next to the label 'flashloan'

<ImageBlock
  src="https://media.alchemy.com/1703767698-flashloan.png"
  alt="Remix address asset input field next to the flashloan button"
  width={274}
  height={43}
/>

4. Enter this contract address in address_asset field: 0xFf795577d9AC8bD7D90Ee22b6C1703490b6512FD . Then click on the flashloan label button in order to start the transaction.

5. This will start the flash loan process and generate 3 transactions on etherscan.

<ImageBlock
  src="https://media.alchemy.com/1703767729-flashloan-process.png"
  alt="3 transactions on etherscan in flash loan process"
  width={947}
  height={138}
/>

The first transaction is from the lending pool to our flash loan contract. Since we did not include any operations to the smart contract, the amount is returned to the lending pool plus an additional fee. The last transaction is the interest for the amount borrowed, which would go to the suppliers of the liquidity pool.