Aave Institutional Lending Plan Faces Financial Strain Without Defaults

Aave's proposed institutional lending business could face financial strain even if no institutions default on their loans, according to an analysis of the company's September 30 clarification.

The lending protocol would borrow dollars against a pool of Aave's own crypto assets, while institutions pledge Bitcoin or Ether for dollar loans. The DAO-funded route would pay prevailing stablecoin borrowing rates, making the borrower's ability to meet margin calls just one test of the business.

Aave Labs' proposal includes two funding authorizations: $25 million issuance bucket for $GHO and up to $25 million of $USDC or $USDT borrowing against DAO assets. The combined $50 million request is capacity for lending against BTC and ETH, with actual outstanding loans undisclosed.