Aave Taps Institutional Market with Custodied Collateral Lending Proposal

Aave has submitted a governance proposal to introduce Custodied Collateral Lending on its Aave V4 protocol, allowing institutions to borrow stablecoins using assets held in custody at Anchorage. The system would keep underlying collateral in Anchorage's custody for the full loan term, with the custodian managing collateral, records balances and loan lifecycle events.

The design uses Chainlink CustodySync to sync custodied balances on-chain in the form of non-transferable receipt tokens, while Chainlink Price Feeds provide consistent pricing data to Aave and the custodian. This allows for seamless tracking of exposure without moving the underlying assets, meeting regulated institutions' segregation and audit requirements.

The new facility would operate within a standalone Liquidity Hub on Aave V4, isolated from the protocol's existing markets. This separation aims to contain risk while letting institutional users tap into the same infrastructure as other Aave products.