Aave Labs has proposed a new lending system that would allow institutions to borrow stablecoins on Aave using Bitcoin held with Anchorage as collateral, without moving the underlying assets on-chain.
The proposal, called Custodied Collateral Lending: Aave V4 Isolated Hub & Spoke, would connect Anchorage’s custody system with Aave V4 through Chainlink infrastructure, while keeping the Bitcoin under the custodian’s control throughout the loan.
The plan is designed for institutional borrowers that need regulated custody and may not be able to move assets into a standard onchain lending protocol. It remains subject to Aave governance approval and has not been deployed yet.
Bitcoin Would Stay With Anchorage
Under the proposed model, an institutional borrower would deposit Bitcoin with Anchorage and keep it there for the loan’s duration.
The Bitcoin would not be transferred to Aave, Chainlink, or the CustodySync system. Instead, the custodied balance would be represented on-chain by a Custodied Collateral Token (CoCT), a non-transferable accounting token created for the Aave V4 integration.
The CoCT would track the collateral held by Anchorage but would not itself be a tradable token or a direct claim on the underlying Bitcoin. The proposal says the collateral Account Control Agreement between the relevant parties would continue to govern legal recourse to the collateral.
This structure lets Bitcoin remain in institutional custody while its value and status are reflected in the Aave lending system.
Chainlink Would Connect Custody and Aave
Chainlink’s CustodySync would bridge Anchorage’s offchain custody system and Aave’s onchain contracts.
Chainlink’s infrastructure would read collateral balances from Anchorage’s collateral management system and synchronize that information with Aave. It would also maintain an onchain Proof of Reserve record for the custodied balance.
When the collateral balance changes, CustodySync would adjust the corresponding CoCT supply. Aave’s native health checks would also continue to apply to the position.
The design means the underlying Bitcoin doesn’t need to move on-chain just because an institution wants to borrow against it.
Aave V4 Would Isolate the Institutional Market
The proposed system would use Aave V4’s Hub-and-Spoke architecture to create a dedicated lending environment for custodied collateral.
Aave Labs proposes one Isolated Hub and one Spoke for the initial system. The isolated structure is intended to prevent the custodied collateral market from creating an exposure path to assets and reserves on other Aave Hubs.
The DAO would retain control over market parameters, borrowing caps, and collateral listings.
The initial proposal specifically calls for a CoCT representing Bitcoin pledged as collateral and held in Anchorage custody. Additional CoCT instances would require governance approval under the current design.
| Component | Role in the Proposed System |
| Anchorage | Holds the underlying Bitcoin and manages the collateral position |
| Aave V4 | Provides the isolated lending infrastructure |
| Chainlink CustodySync | Synchronizes custody data with Aave’s onchain contracts |
| CoCT | Represents the custodied collateral position onchain |
| Aave DAO | Controls listings, caps, and other governance parameters |
Table 1. Roles in Aave’s proposed custodied collateral lending system.
Institutions Could Borrow Stablecoins Without Moving Bitcoin
Once the collateral is set up, the borrower would use the CustodySync bridge to access stablecoin liquidity from the Aave V4 Spoke.
Aave founder and CEO Stani Kulechov described the proposal as a “first-of-its-kind proposal” that would allow institutions to borrow against collateral held with a qualified custodian while accessing liquidity from Aave V4 markets.
Under the plan, stablecoins would be sent from the Spoke to the borrower’s address in the same transaction. When the loan is repaid, the borrower’s debt would decrease, but Anchorage would not automatically release the Bitcoin.
The setup would let institutions access on-chain loans while keeping their Bitcoin with a qualified custodian. Aave’s deposit base has seen sharp swings this year, adding context to the protocol’s push to expand lending to institutional borrowers.
Liquidations Would Happen Through Anchorage
The plan also changes how liquidations would work. Instead of selling the collateral automatically onchain, Anchorage would handle the liquidation as an over-the-counter sale. The sale proceeds would then be used to settle the related Aave position.
When a liquidation is triggered, Anchorage would record a liquidation commitment. The plan also allows for partial liquidations and would record the amount committed from the sale on-chain while the settlement is completed.
The final settlement would repay the debt, withdraw and burn the related CoCT, and remove the liquidation commitment in a single transaction.
This approach is designed to fit how institutional custodians manage assets while allowing borrowers to keep their Bitcoin with Anchorage during the lending process.
Proposal Still Needs Aave Governance Approval
The custodied lending system is currently a governance proposal, not a live Aave market. The current ARFC is intended to gather feedback from the Aave community and service providers.
If sentiment is positive, the proposal would move to a Snapshot vote. If the Snapshot passes, the team would submit an Aave Improvement Proposal (AIP) with final risk parameters for onchain governance approval.
Several important parameters have not yet been finalized. These include the collateral factor, liquidation bonus and fee, target health factor, supply and borrowing caps, interest rate strategy, and oracle configuration. The proposal says Aave’s risk service providers will recommend those parameters before the AIP.
What Comes Next
Aave’s next step is to gather community and service-provider feedback on the proposed Custodied Collateral Lending system. A Snapshot vote would follow if the ARFC receives positive support, with an onchain AIP required before the system could be approved and deployed.
The proposal would let institutions borrow stablecoins against Bitcoin while keeping the asset with Anchorage rather than transferring it to Aave. For Aave users, the main development to watch is whether the DAO approves the isolated market and the final risk parameters.
What This Means for You: The proposal does not change existing Aave markets yet. If approved, it would create a separate V4 lending system for institutionally custodied collateral, starting with Bitcoin held at Anchorage.
