Aave’s proposed institutional lending business would put crypto collateral on both sides of the financing chain. Institutions would pledge Bitcoin or Ether for dollar loans, while the organization governing the Aave lending protocol would initially borrow those dollars against a separate pool of its own crypto assets.

Aave Labs’ September 30 clarification identifies an Aave Labs entity as the contractual lender and confirms that the DAO-funded route would pay prevailing Aave V3 stablecoin borrowing rates. That makes the borrower’s ability to meet a margin call only one test of the business. The funding position could face its own collateral pressure or rising interest costs while an institutional loan remains current.

Aave’s governing organization, the DAO, is considering two proposed funding authorizations: a 25 million issuance bucket for GHO, Aave’s stablecoin, and up to $25 million of USDC or USDT borrowing against DAO assets. The scope includes BTC and ETH. The combined $50 million request is capacity for lending against BTC and ETH; actual outstanding loans remain undisclosed.

Aave Labs reports approximately $300 million of indicated demand and describes a $20 million lead BTC facility. The demand pipeline and lead facility are indicative, with actual drawdowns still to be reported.

A decline in crypto prices could weaken both collateral pools, while rising stablecoin borrowing costs could narrow the DAO’s interest spread. The resulting pressure would depend on the assets pledged, each position’s terms and how quickly institutional loan rates can be adjusted.

The September 24 proposal would initially fund lending by pledging DAO-owned WETH and WBTC, with AAVE permitted up to 50% of collateral at each pledge. WETH and WBTC represent wrapped Ether and Bitcoin. The DAO would borrow USDC or USDT on Aave V3 and use that financing for institutional facilities.

Separately, the institutional borrower would place BTC or ETH with a qualified custodian. That collateral would secure the borrower’s loan under a Master Loan Agreement with an Aave Labs entity. A three-party Account Control Agreement would connect the lender, borrower and custodian.

These are different assets pledged for different debts. The DAO’s onchain pledge would be separate from the borrower’s custody account. The proposal says borrower collateral would never be rehypothecated, or pledged onward.