Aave Labs has introduced a proposal titled “Custodied Collateral Lending: Aave V4 Isolated Hub & Spoke,” outlining an Aave V4 setup designed for assets held with institutional custodians. The model aims to let institutions access on-chain borrowing without moving their Bitcoin out of regulated custody.
Under the initial model, Bitcoin would stay at Anchorage Digital Bank for the duration of the loan. Rather than using a standard wrapped-Bitcoin market or bridging BTC into a DeFi contract, the underlying asset remains with the custodian while a non-transferable Custodied Collateral Token (CoCT) represents the position on-chain.
Chainlink's proposed CustodySync infrastructure would be utilized to mint and burn the token as the custodied balance changes, keeping the off-chain custody account and the Aave lending position synchronized. Borrowers would then be able to draw stablecoins from the isolated Aave V4 hub.
The proposal addresses a long-standing challenge for institutional crypto holders who want access to on-chain liquidity without navigating the compliance, security, and operational hurdles of moving assets out of qualified custody. However, the architecture introduces new dependencies, requiring Aave to trust that custody information is synchronized accurately and quickly enough for lending and liquidation decisions.
The proposal remains in the governance discussion stage and is not yet a live Aave market.
