Aave Arc to Provide 30 Financial Institutions Access to Private Pools of DeFi Liquidity

A permissioned version of the DeFi liquidity protocol, Aave Arc, launched today and Fireblocks “whitelisted” 30 financial institutions to participate in it. 

“Aave Arc allows institutions to interact with the Aave Protocol the same way any other user would, but on their own separate and permissioned liquidity pool where every user has been verified,” Stani Kulechov, founder & CEO of Aave told Blockworks. 

The permissioned Aave Arc has the same features as Aave Protocol and fits within the KYC and AML compliance standards, Kulechov said. “​This allows institutions to leverage almost all the benefits of DeFi while remaining aligned with their compliance requirements,” he added. 

Among the institutions are Anubi Digital, Bluefire Capital (acquired by Galaxy Digital), Canvas Digital, Celsius, CoinShares, GSR, Hidden Road, Ribbit Capital, Covario, QCP Capital and Wintermute. 

Since launching in June 2020, the institutional digital asset custody company Fireblocks has amassed over 500 liquidity partners who actively move assets across 30 of the world’s largest digital asset exchanges, such as Binance, Bitfinex, Coinbase, FTX and more, Blockworks previously reported. Fireblocks’ 2021 year-end review touts $40 billion in assets under management with the company.

Aave Protocol is owned and governed by over 100,000 AAVE token-holders who can create and vote on proposals to change or update the protocol, Kulechov said. 

While the Aave governance system will also govern the permissioned Aave Arc, the only difference is that whitelisters have a “guardian” role, which allows them to veto a proposal only if it’s necessary for regulatory and compliance obligations, he said. 

The 30 companies volunteered to become “whitelisted” and some were existing Fireblocks customers while others were new customers who came on board, Jason Allegrante, chief legal and compliance officer at Fireblocks said to Blockworks.

The opportunity

There’s about $254 billion in total valued locked across decentralized finance, according to data from the TVL aggregator DeFi Llama. Aave is one of the largest decentralized borrowing and lending platforms throughout the entire DeFi ecosystem, with more than $14.45 billion of TVL,  as of Wednesday. 

The market has been largely untouched by financial institutions due in part to compliance requirements. By creating this alternative private pool to meet regulatory standards, it could unlock a trillion dollar opportunity over the next half decade, according to data from blockchain research firm Blockdata. 

Figures from September 2021

“We’re bringing the world of DeFi to the institutions because they can’t come to it in its decentralized form,” Allegrante said. “It’s a hybrid solution and puts the protocol and all the interesting things it does as a centralized gateway to the protocol. The technology is still what it is, but building a permissioned environment around it,” he added. 

In the future, other regulated entities will be considered to be approved as whitelisters for Aave Arc, both Kulechov and Allegrante said. There are some entities that have already submitted their applications to the Aave Governance forum to become whitelisters, Kulechov noted.

“I do hope we can trend toward a fully decentralized future, but we have to realize the opportunity we have before us by bringing DeFi to institutions,” Allegrante said. “If you look at DeFi and what it could do, we may be looking at the next wave of institutional adoption here,” he added.

This story was updated on Jan. 10, 2022 at 7:00 AM to correct the name of Anubi Digital.

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