Aave unveils custodied collateral lending proposal for institutions

Aave Labs has published a governance proposal that could fundamentally reshape how institutional capital interacts with decentralized lending. The plan: let institutions borrow stablecoins against assets like Bitcoin while those assets never leave the custody of a regulated provider. The proposal, titled “Custodied Collateral Lending: Aave V4 Isolated Hub & Spoke,” was posted to Aave’s governance forum on September 14. If approved by the Aave DAO, it would create a new lending structure where borrowers pledge collateral held at Anchorage Digital, one of the few federally chartered crypto banks in the US, and receive stablecoin liquidity through the Aave protocol. How the lending model actually works Instead of transferring assets on-chain, the collateral stays locked at Anchorage. A new token type called Custodied Collateral Tokens, or CoCTs, gets minted to represent those custodied assets on-chain. These CoCTs are ERC-20 tokens, but with a critical twist: they’re non-transferable. You can’t trade them, sell them, or move them to another wallet. They exist purely as an on-chain accounting layer for the underlying collateral. The minting and burning of these tokens runs through ...