Aave Introduces Custodied Collateral Lending for Institutional Borrowers
Aave is expanding its lending platform to include institutional borrowers who hold their assets in regulated custody. The new proposal, Aave custodied collateral lending, would allow institutions to use their collateral as security for stablecoin loans without moving it into Aave's on-chain protocol.
The initial rollout will be limited to a single isolated Aave V4 Hub and one Spoke, with the first asset being Bitcoin held at Anchorage. The proposal creates a Custodied Collateral Token (CoCT) that represents the custodied balance, allowing institutions to borrow stablecoins from the isolated market.
This model isolates risk within a separate credit environment, reducing the impact on existing Aave reserves and liquidity pools. Aave Labs believes this approach will enable institutional growth without increasing systemic dependence on a common liquidity pool.