The time-value still comes into play in the form of eth transaction fee. If you're flash loaning to take advantage of an open arbitrage opportunity there will be other parties trying to take advantage of it, so you will pay more to get your transaction in before theirs.

For a lot of transactions like this its actually miners who can detect and rewrite these transactions to take advantage of the arbitrage opportunities first, for this reason this cost is called "miner extractable value" or MEV.

However, note this fee doesn't accrue to the lender!

> Basically if you put $1000 of capital into the pot for making flash loans, then you are foregoing the X% / year that you could earn on interest, i.e. you are losing money.

The funds aren't foregoing interest in all cases though. Ex: uniswap, curve, etc all require assets to be deposited, and pay depositors trading fees. These protocols could generate additional income by providing assets for flash loans without affecting the income received for acting as an amm.

I see, good point. If the deposits are there already then it’s no loss to put them to work like this.