Aave Proposes Accepting Custodied BTC as Loan Collateral

Aave has proposed accepting custodied BTC as loan collateral without bridging or on-chain custody risk.

The plan involves launching a separate, isolated market in Aave V4 that allows institutional borrowers to draw stablecoin loans against assets held with a regulated custodian, starting with $BTC held in custody with Anchorage.

The process works by having the collateral stay with Anchorage for the full loan term and never touching the blockchain. Chainlink's CustodySync mints a non-transferable receipt token (CoCT) representing the custodied assets, which is then deposited on Aave to receive stablecoins.

This market would be fully isolated from Aave's existing pools, meaning zero impact on current reserves.