Background

Since its launch in January 2020, the Aave Protocol—an open source, decentralized, non-custodial liquidity protocol—has experienced exponential growth with peak liquidity reaching over USD 30 billion, and total active users totaling nearly one million.

As demand for decentralized finance (“DeFi”) has grown, so too has the interest from traditional financial institutions. Several fintechs, hedge funds, family offices, and asset managers have expressed interest in using a version of the Aave Protocol that meets their internal requirements.

Additionally, financial institutions ranging from bulge bracket investment banks, endowments, mutual funds, pension funds and even central banks have reached out to learn how the Aave Protocol and, more broadly, how DeFi works.

Aave Arc provides an isolated Aave market and a sandbox environment for institutions to experience the power of DeFi: transparency, decentralized governance, rapid innovation, automated smart contract-based execution, liquidity, and programmability.

Why and how is explained below:

KYC and Decentralization

Traditional financial institutions and fintech platforms can make DeFi accessible to billions of fiat-native users who have not yet dabbled with crypto wallets for a variety of reasons (e.g., complexity, access, etc.).

For permissioning, Aave Arc introduces the notion of “whitelisters” that provide KYC, AML, and Onboarding services to users of the permissioned Aave market. You can learn further details about whitelisters in the Arc Whitepaper here.

Aave Arc is designed to continue the decentralization ethos central to DeFi and, thus, is governed by Aave Governance in the same way as Aave V2.

Aave Arc whitelisters play a guardian role in the Aave Arc market—I.e., they can collectively (via multisig) veto certain proposals from the Aave Governance only if such proposals limit the ability of whitelisters  to meet compliance obligations.  This is key to ensuring the sustainability of Arc, while also maintaining a “check” on Aave Arc whitelisters who are appointed or removed by governance.

Fireblocks

Today we are excited to announce that Fireblocks LLC, a registered money services business (MSB) in the United States with money transmission licenses in several states, has submitted an Aave Improvement Proposal (AIP) to become the first whitelister on Aave Arc (the Fireblocks AIP). Fireblocks is known for its leading institutional MPC wallet product that already supports several DeFi protocols, including Aave V2. Fireblocks has processed $1.4TN in crypto transactions to date.

If this AIP is approved by Aave Governance, Aave Arc will be the first permissioned deployment of the Aave Protocol. Participants in Aave Arc will be able to supply cryptoassets to earn yield, or borrow assets against their supplied collateral. Aave Arc will have the same features as the secure, reliable, and battle-tested permissionless Aave market.

The initial assets available for positions on Aave Arc will be Ethereum, USDC, Bitcoin, and AAVE. Aave Governance will be able to add new assets through the standard proposal process.

Read more here:

Access

Subject to governance approval of the Fireblocks AIP, market participants will be able to onboard onto Aave Arc via Fireblocks LLC and use Aave Arc in the same way as they use Aave V2.

It is anticipated that in the future other regulated entities will submit governance proposals to be approved as whitelisters for Aave Arc, which will facilitate market participants’ choice of onboarding onto Aave Arc via one or more whitelister.

Conclusion

Aave Arc is creating the bridge for traditional financial institutions to interact with DeFi and offer new products and services to their own customers. If you are interested in participating in the Arc Market, you can register your interest here: