Aave Labs has introduced a governance proposal titled Custodied Collateral Lending: Aave V4 Isolated Hub & Spoke, published on September 14. The initiative aims to allow institutions to borrow stablecoins using assets like Bitcoin as collateral without moving them on-chain.
Under this model, collateral remains locked at Anchorage Digital, a federally chartered crypto bank. The system utilizes Custodied Collateral Tokens (CoCTs), which are non-transferable ERC-20 tokens serving as an on-chain accounting layer for the assets held in custody.
The minting and burning of these tokens are managed by Chainlink’s CustodySync infrastructure. If a borrower's position drops below the required ratio, liquidations will occur through private over-the-counter sales instead of public auctions.
The proposal creates a separate Isolated Hub and Spoke system within the Aave V4 architecture, keeping institutional lending distinct from retail markets. Anchorage Digital is updating its Atlas platform to support this framework, which requires approval from the Aave DAO.
