Aave, the well-known decentralised lending platform has launched a bank-friendly permissioned DeFi protocol called Aave Arc, for institutional investors. Fireblocks, being the first active whitelister has approved 30 financial institutions for the pool.
Having floated the idea of a permissioned DeFi pool back in May 2021, and then giving it broader shape in Sep 2021, Aave, the popular DeFi money market protocol officially launched its permissioned DeFi liquidity protocol Aave Arc yesterday. The main idea behind launching this new service is to enable institutional investors to participate compliantly in the DeFi ecosystem.
Normally, all borrowing and lending of cryptocurrencies in DeFi happens in a completely pseudonymous manner, with entities represented by nothing more than long alphanumeric strings. This is quite contrary to how traditional finance works, wherein trading parties have to comply with KYC (Know Your Customer) requirements to participate in any type of borrowing and lending activity. Aave Arc aims to accomplish exactly that, with the help of Fireblocks, a well-known cryptocurrency custody firm which has turned ‘whitelister,’ and has initially licensed 30 trading firms to be a part of the newly-launched pool.
The 30 financial institutions that have been whitelisted by Fireblocks to participate as borrowers, lenders and liquidators include Ribbit Capital, Anubi Digital, CoinShares, Canvas Digital, Wintermute, GSR, Celsius, Bluefire Capital (acquired by Galaxy Digital) and Hidden Road.
Speaking about the new platform, Stan Kulechov, the CEO and Founder of Aave said, “DeFi represents a powerful wave of financial innovation including transparency, liquidity, and programmability–and it’s been inaccessible to traditional financial institutions for far too long. The launch of Aave Arc allows these institutions to participate in DeFi in a compliant way for the very first time.” He further added that Fireblocks will use globally-accepted KYC norms and conduct thorough due diligence per the FATF (Financial Action Task Force) guidelines, before onboarding any institution to the Aave Arc platform.
Permissioned DeFi is where the future of institutional finance resides
The present-day DeFi market has a Total Locked Value (TVL) in excess of $250 billion, which has largely remained unavailable to financial institutions owing to the lack of a regulatory framework. As per Blockdata, a blockchain research company, the launch of Aave Arc will allow institutional investors to potentially tap into this trillion-dollar opportunity over the next five years.
Kulechov informed that Aave Arc began as more of an experiment last year, and gradually took shape of a new DeFi protocol. He asserted that both permissioned and permissionless DeFi will co-exist, and flourish in the future. Additionally, he feels fascinated by the diversity of financial institutions that have shown interest in Aave Arc, including banks, hedge funds and purely crypto investment firms, all of whom can benefit from the permissioned pool in their own unique ways.
