Aave Proposes Institutional Lending System Using Custodied Collateral Tokens

Aave Labs has proposed a new lending system for institutions to borrow stablecoins against Bitcoin held in Anchorage Digital custody. This model is part of Aave V4, dubbed 'Custodied Collateral Lending: Isolated Hub & Spoke.' The system utilizes non-transferable Custodied Collateral Tokens (CoCTs) to represent off-chain collateral, with Chainlink's CustodySync managing their minting and burning.

Liquidations will occur over-the-counter, and the system will be separate from Aave's retail markets. Approval from Aave DAO token holders is required for this new lending model.