Aave’s $50 million lending plan could lose money without a single default

Aave’s proposed institutional lending business would put crypto collateral on both sides of the financing chain. Institutions would pledge Bitcoin or Ether for dollar loans, while the organization governing the Aave lending protocol would initially borrow those dollars against a separate pool of its own crypto assets.Aave Labs’ September 30 clarification identifies an Aave Labs entity as the contractual lender and confirms that the DAO-funded route would pay prevailing Aave V3 stablecoin borrowing rates. That makes the borrower’s ability to meet a margin call only one test of the business. The funding position could face its own collateral pressure or rising interest costs while an institutional loan remains current.Aave’s governing organization, the DAO, is considering two proposed funding authorizations: a 25 million issuance bucket for GHO, Aave’s stablecoin, and up to $25 million of USDC or USDT borrowing against DAO assets. The scope includes BTC and ETH. The combined $50 million request is capacity for lending against BTC and ETH; actual outstanding loans remain undisclosed.Aave Labs reports approximately $300 million of indicated demand and describes a $20 million lead BTC f...