Aave Taps Institutional Custodians to Unlock DeFi Lending
Aave, a leading decentralized finance (DeFi) lending protocol, has proposed a new plan to attract more institutional investors into its platform. The proposal, called custodied collateral lending, aims to allow institutions to borrow stablecoins on Aave using collateral held with a regulated custodian.
The key bottleneck in the current system is the lack of communication between institutional custody and on-chain lending. To bridge this gap, Aave wants institutions to move their assets to Anchorage, a regulated custodian, which will then represent the assets on-chain via Chainlink's CustodySync and Custodied Collateral Tokens (CoCTs).
These CoCTs will be deposited on Aave to borrow stablecoins, such as USDC. After repayment, the CoCTs are burnt, and the underlying asset is unlocked from Anchorage and returned to the institutional player.
Aave's founder, Stani Kulechov, has described this proposal as 'first-of-its-kind', which could potentially unlock a massive amount of institutional capital for DeFi lending. Currently, Aave has a total value locked (TVL) of $19B, a 52% recovery from its June low.