Aave Aims to Bridge Institutional Custody and DeFi Lending

Aave is pushing for a new proposal that could bring institutional investors into the DeFi space. The plan, called custodied collateral lending, would allow institutions to borrow stablecoins on Aave by using collateral held with regulated custodians like Anchorage.

The main goal of this proposal is to overcome the current limitations between institutional custody and on-chain lending. This includes a lack of communication between these two systems, which prevents institutions from easily participating in DeFi lending activities.

Aave wants to bridge this gap by allowing institutions to move their assets to Anchorage, where they will be represented on-chain via Chainlink's CustodySync and Custodied Collateral Tokens (CoCTs). These CoCTs can then be used as collateral for borrowing stablecoins on Aave.

The proposal has the potential to unlock significant institutional capital. With a total value locked of $19 billion, Aave is already experiencing growth, having rebounded by 52% in Q3 from its June low.