Chapter 5: Aave V3 Flashloan Developer Guide — How to Harness DeFi Liquidity Like a Pro

First, I would like to thank you for visiting my blog. I hope you cover the previous chapters in this module. So, you’ve learned why flash loans are a powerhouse in DeFi—and you’ve written a basic flash loan smart contract. Now, meet the real engine behind the scenes: Aave V3. This is the protocol that unlocks atomic flashloans, and it’s built for developers like you: flexible, modular, and cross-chain.

Let’s break it down so you can drive flashloan arbitrage with confidence.

5.1 What Makes Aave V3 the Best for Flashloans?

Aave V3 is the latest, most robust version of the Aave protocol and it’s deployed on chains like Ethereum, Polygon, and Avalanche.

Key developer features include:

• eMode (High-Efficiency Mode): Optimized rates for low-volatility assets
• Isolation Mode: Safely introduce new assets with limited risk
• Cross-Chain Portal: Hunt for arbitrage across networks
• Flashloan Access: Deep liquidity + low cost (often ~0.05–0.09%)
• Modular Design: Cleaner contracts, easier integration
• Gas-savings: Efficient function signatures and permission architecture

In short: Aave V3 has everything a flashloan developer needs—liquidity, speed, and control.

5.2 Inside the Aave V3 Architecture

The diagram below describes the flow of the flashloan.

Here are your main building blocks:

You’ll mainly work with IPool and possibly extend from FlashLoanSimpleReceiverBase for convenience.

5.3 How to Call flashLoanSimple() Efficiently

Here’s the key function signature:

function flashLoanSimple(
  address receiverAddress,
  address asset,
  uint256 amount,
  bytes calldata params,
  uint16 referralCode
) external;

receiverAddress: Where borrowed funds go

asset: The token you’re borrowing

amount: How much you borrow

params: Custom data passed via executeOperation()

referralCode: Typically 0 unless using affiliates

5.4 What Happens When You Flashloan?

Behind the scenes:

1. Aave transfers the asset to your contract
2. Aave calls your executeOperation()
3. Your logic runs, then repays loan + fee
4. If repayment fails—everything reverts atomically
5. You keep profit only if your logic succeeds

This lockstep guarantees safety and your peace of mind as a developer.

5.5 A Streamlined Flashloan Receiver Base

To make coding easier, Aave offers a helper contract:

import {FlashLoanSimpleReceiverBase} from "@aave/core-v3/contracts/flashloan/base/FlashLoanSimpleReceiverBase.sol";

contract MyFlashloanBot is FlashLoanSimpleReceiverBase {
  constructor(IPoolAddressesProvider provider)
    FlashLoanSimpleReceiverBase(provider) {}

  function executeOperation(...) external override returns (bool) {
    // Your arbitrage logic here
  }
}

This sets up POOL and ADDRESSES_PROVIDER automatically, so your code stays clean.

5.6 Calculating & Repaying Fees

Aave’s flashloan fees typically range from 0.05% to 0.09%. Use the constant FLASHLOAN_PREMIUM_TOTAL to calculate exact cost.

You must approve the amount + premium to Aave before executeOperation() ends:

IERC20(asset).approve(address(POOL), amount + premium);

If you fail to do this, the transaction will revert—no exceptions, no partial success.

5.7 Chain Support & Pool Addresses

Aave V3 supports multiple chains. Here’s a quick snapshot:

Use the provider interface:

IPool pool = IPool(provider.getPool());

This makes your contract chain-agnostic—write once, deploy everywhere.

5.8 Real Flashloan Arbitrage Scenario

Imagine this simple end-to-end workflow:

1. Borrow 100,000 USDC via flashLoanSimple()
2. Swap to WETH on Uniswap
3. Swap back to USDC on SushiSwap
4. Check if final amount > borrowed + fee
5. Repay loan and emit a profit log

bool success = pool.flashLoanSimple(...);

function executeOperation(...) {
  // swap to WETH and back
  // calculate profit
  approve repayment
  emit ArbitrageProfit(msg.sender, profit);
}

If profit ≥ fee, you gain—and only if.

5.9 Common Pitfalls to Avoid

Full Solidity Example

// SPDX-License-Identifier: MIT
pragma solidity ^0.8.20;

import {FlashLoanSimpleReceiverBase} from "@aave/core-v3/contracts/flashloan/base/FlashLoanSimpleReceiverBase.sol";
import {IPoolAddressesProvider, IPool} from "@aave/core-v3/contracts/interfaces/IPoolAddressesProvider.sol";
import {IERC20} from "@openzeppelin/contracts/token/ERC20/IERC20.sol";

contract AaveV3FlashloanBot is FlashLoanSimpleReceiverBase {
    event ArbitrageExecuted(address indexed executor, uint256 profit);

    constructor(IPoolAddressesProvider provider) FlashLoanSimpleReceiverBase(provider) {}

    function startFlashloan(address asset, uint256 amount, bytes calldata params) external {
        POOL.flashLoanSimple(address(this), asset, amount, params, 0);
    }

    function executeOperation(
        address asset,
        uint256 amount,
        uint256 premium,
        address , // initiator
        bytes calldata
    ) external override returns (bool) {
        // Custom arbitrage logic here
        uint256 totalOwed = amount + premium;
        IERC20(asset).approve(address(POOL), totalOwed);
        emit ArbitrageExecuted(msg.sender, IERC20(asset).balanceOf(address(this)) - totalOwed);
        return true;
    }
}

Call to Action

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If you’re interested, you can read other chapters here.

Chapter 1: Flash Loan Arbitrage with Solidity: The Ultimate Beginner’s Guide

Chapter 2: The Anatomy of a Flash Loan in Solidity

Chapter 3: Solidity Fundamentals for Flash Loan Developers

Chapter 4: Interfaces and Functions — Building Blocks of Flashloans

Chapter 5: Aave V3 Flashloan Developer Guide — How to Harness DeFi Liquidity Like a Pro

Chapter 6: 7 Proven Strategies for Arbitrage Execution Across DEXs with Uniswap & Paraswap