Aave Unveils Custodied Collateral Lending Proposal for Institutional Investors
Aave Labs has proposed a new governance model for decentralized lending that could revolutionize how institutional capital interacts with DeFi. The plan, titled 'Custodied Collateral Lending: Aave V4 Isolated Hub & Spoke,' would allow institutions to borrow stablecoins against assets like Bitcoin while those assets remain in the custody of a regulated provider.
According to the proposal, borrowers would pledge collateral held at Anchorage Digital, one of the few federally chartered crypto banks in the US. This collateral would never leave the custody of Anchorage, and instead, a new token type called Custodied Collateral Tokens (CoCTs) would be minted on-chain to represent it.
The CoCTs are non-transferable ERC-20 tokens that exist solely as an accounting layer for the underlying collateral. They would be minted and burned through Chainlink's CustodySync infrastructure, ensuring that the collateral remains locked at Anchorage even when a loan is issued or repaid.
One key feature of this proposal is that liquidations would occur through over-the-counter sales rather than public auctions. This means that if a borrower's position falls below the required collateral ratio, the resolution would happen through private negotiation rather than an open fire sale.