Aave Labs has proposed a V4 lending market designed to let institutions borrow stablecoins on-chain while keeping Bitcoin in regulated custody off-chain. The model, titled “Custodied Collateral Lending: Aave V4 Isolated Hub & Spoke,” would allow borrowers to access liquidity without moving assets out of compliance-grade vaults.
Under the proposal, Bitcoin held at Anchorage Digital Bank would remain there for the life of the loan. An on-chain non-transferable token called a Custodied Collateral Token (CoCT) would represent the borrower’s collateral position. Chainlink’s CustodySync infrastructure would mint and burn the CoCT as the custodied balance changes, synchronizing off-chain custody data with the on-chain lending hub.
Borrowers could then draw stablecoins from an isolated Aave V4 hub, accessing liquidity tied to their custodied Bitcoin without moving the underlying asset. The structure addresses a core tension in institutional crypto: the need to tap on-chain lending markets while remaining within regulated custody frameworks and compliance requirements.
Governance Stage
The proposal is currently in the governance discussion phase and is not yet a live Aave market. Aave Labs has posted the proposal on the Aave governance forum for community review and deliberation.
The model represents a shift in how DeFi protocols can serve institutional borrowers. Rather than requiring custodians to tokenize or bridge assets onto public blockchains, the CoCT approach keeps Bitcoin in Anchorage’s vaults while Chainlink infrastructure creates a synchronized on-chain representation. This preserves both the security posture of regulated custody and the capital efficiency of decentralized lending.
The proposal does not yet specify loan terms, collateral ratios, liquidation thresholds, or a timeline for governance voting and implementation.
