Decentralized finance (DeFi) lending protocol Aave has officially launched Aave Arc, a permissioned platform designed specifically for institutional participants. This new offering requires institutions to undergo a compliance approval process before gaining access. Fireblocks, a leading digital asset custody provider, has been announced as the first whitelisted entity on the platform, with expectations for more organizations to join in the near future.
What Is Aave Arc and How Does It Work?
Aave Arc operates similarly to the main Aave protocol but with a critical difference: access is restricted to institutions that have passed rigorous financial due diligence and compliance checks. The platform supports four major cryptocurrencies at launch: Ethereum (ETH), Wrapped Bitcoin (WBTC), the USD Coin (USDC) stablecoin, and Aave’s native token, AAVE.
This initiative, initially proposed in July of last year, aims to bridge the gap between traditional finance and DeFi by providing a regulated and secure environment for large-scale entities. By implementing know-your-customer (KYC) and anti-money laundering (AML) procedures, Aave Arc aligns with global regulatory standards, including guidelines from the Financial Action Task Force (FATF).
The Role of Fireblocks as the First Whitelister
As the first whitelisted member, Fireblocks plays a pivotal role in vetting and onboarding institutional participants. The company has already approved over 30 licensed financial institutions—including lenders, borrowers, and liquidators—to engage with Aave Arc. Notable participants include Anubi Capital, Celsius, CoinShares, GSR, and Wintermute.
Michael Shaulov, CEO and Co-Founder of Fireblocks, emphasized that Aave Arc enables the world’s largest institutions to safely enter the DeFi ecosystem. The platform uses internationally recognized compliance frameworks to ensure that all participants meet stringent regulatory requirements.
Rich Rosenblum, Co-Founder and President of GSR, noted that Aave Arc represents a defining moment for DeFi, allowing firms to develop new products and services for their clients by accessing previously untapped liquidity pools.
The Growing Institutional Demand for DeFi
Aave has established itself as a leader in the DeFi lending space, with a total value locked (TVL) exceeding $13.6 billion across Ethereum, Avalanche, and Polygon networks. Despite growing institutional interest in cryptocurrencies throughout 2021, many large entities remained hesitant to engage with permissionless DeFi protocols due to regulatory and compliance concerns.
Aave Arc addresses these concerns by offering a controlled environment that complies with existing financial regulations. It is not the first institutional-focused DeFi product—Compound Treasury launched a similar USDC savings product in collaboration with Fireblocks and Circle in June of last year—but it signifies a broader trend of DeFi platforms tailoring services to professional investors.
The Future of Institutional DeFi
The introduction of Aave Arc is expected to accelerate institutional adoption of decentralized finance. Other entities, such as Securitize, have already expressed interest in becoming whitelisters, indicating strong demand for compliant DeFi solutions.
As more institutions seek exposure to digital assets, platforms like Aave Arc will play an essential role in providing secure, scalable, and regulated access to DeFi markets. This evolution is likely to encourage further innovation and integration between traditional and decentralized finance.
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Frequently Asked Questions
What is Aave Arc?
Aave Arc is a permissioned DeFi lending platform built by Aave for institutional investors. It requires participants to undergo compliance checks and due diligence before accessing its services, ensuring regulatory alignment.
Which assets are supported on Aave Arc?
The platform initially supports four cryptocurrencies: Ethereum (ETH), Wrapped Bitcoin (WBTC), USD Coin (USDC), and Aave’s native token AAVE.
How does whitelisting work for Aave Arc?
Whitelisting is managed by approved entities like Fireblocks, which perform KYC and AML checks on behalf of institutions. Once approved, institutions can lend, borrow, or act as liquidators on the platform.
Why is Aave Arc significant for the DeFi industry?
It bridges traditional finance and DeFi by introducing a compliant framework that appeals to institutional players, potentially increasing liquidity and stability in the DeFi ecosystem.
Can individual users access Aave Arc?
No, Aave Arc is designed exclusively for approved institutions. Retail users can continue using the permissionless Aave main protocol.
Are there other platforms similar to Aave Arc?
Yes, Compound Treasury offers a comparable service aimed at institutions, focusing primarily on USDC savings products in partnership with established financial entities.