Aave Proposes Bitcoin-Backed Lending for Institutions Through V4
Aave Labs is proposing a new lending system that allows institutions to borrow stablecoins against Bitcoin held in Anchorage custody without transferring the assets on-chain.
The proposed system, called Custodied Collateral Lending: Aave V4 Isolated Hub & Spoke, connects Anchorage's custody system with Aave V4 through Chainlink infrastructure. The Bitcoin would remain under Anchorage's control throughout the loan, and a non-transferable accounting token called a Custodied Collateral Token (CoCT) would track the collateral held by Anchorage.
The CoCT would represent the custodied collateral position on-chain and would not be a tradable token or a direct claim on the underlying Bitcoin. Aave founder Stani Kulechov described this proposal as 'a first-of-its-kind proposal' that would allow institutions to borrow against collateral held with a qualified custodian while accessing liquidity from Aave V4 markets.
The system uses Aave V4's Hub-and-Spoke architecture to create a dedicated lending environment for custodied collateral. The isolated structure is intended to prevent the custodied collateral market from creating an exposure path to assets and reserves on other Aave Hubs.