Aave Arc pushes for growth
Aave Arc, the DeFi lending giant’s platform catering to TradFi and crypto firms has signed up at least 30 institutions on a whitelisted basis. These include Galaxy Digital, a financial services firm, CoinShares, a digital asset investment outfit, and Wintermute, a market maker. Aave is currently the fourth-largest DeFi protocol by cross-chain total value locked with $18B.
Aave Arc is a separate to the second version of the main Aave protocol and it facilitates crypto asset lending and borrowing services. It also uses an additional smart contract layer that restricts access to permissioned entities. It is a bet on Aave’s part that investment firms are keen to be involved in DeFi but don’t want to run afoul of regulatory risks.
What Aave Arc does for TradFi
It is designed to help institutions develop new products and services utilizing digital assets, including “protocol deployments connected to debit cards,” high yield savings accounts, and regulated fiat ramps to DeFi dapps. Stani Kulechov, Aave’s founder and CEO, said Aave Arc will allow “institutions to participate in DeFi in a compliant way for the very first time.”
Aave is using third-party entitites to manage its whitelisting process. Whitelisters are tasked with onboarding institutional users to the platform, in addition to monitoring KYC and AML compliance. Currently, Fireblocks, a New York-based crypto custodian serving more than 700 institutions, is Aave Arc’s sole approved whitelister. This means Fireblocks’ customers who undergo the requisite whitelisting process can now access Aave Arc via the custodian’s platform. Michael Shaulov, CEO of Fireblocks, said, “From hedge funds to banks, regulated DeFi tooling could unleash a wave of new products and services such as flash-loans and high-yield deposit accounts.”
Swiss digital asset bank SEBA has also applied to become a whitelister. SEBA emphasized its “tight connections to money managers in Switzerland and beyond,” and said Aave Arc can help its own clients access DeFi yields while remaining compliant with their regulatory obligations.
There have been mixed reactions to Aave Arc since it launched in July 2021. While some celebrated the blue-chip DeFi protocol positioning itself to unlock institutional capital and a new class of investors, others criticized Aave for devoting resources to developing a closed platform. However, the Aave team remarked that if 1% of the assets managed by the world’s largest banks were invested into DeFi, almost $1T would be deployed.