Aave has launched its new permissioned liquidity pool for institutions wanting to engage in decentralized finance (DeFi) activities in a compliant manner.
The service, called Aave Arc, is a decentralized liquidity market that will require all participating instutionts to abide by anti-money laundering (AML) regulations and Know Your Customer (KYC) verification.
The first institution on board for the new pool is Fireblocks, who will also act as a whitelisting agent for the Aave Arc service. Since Aave is not a regulated entity, it can’t perform AML and KYC laws the same way a bank or institution does. Institutions wishing to join the pool have to undergo KYC with Fireblocks in order to become a whitelisted supplier, borrower, and/or liquidator on Aave Arc.
Other entities joining the pool include CoinShares, Anubi Capital, and lending platform Celsius.
According to announcement from Fireblocks:
“While approximately $255.9 billion is currently locked in DeFi, the market has largely remained untapped by institutions due to a lack of support for enterprise-grade risk management and KYC/AML requirements…
Aave Arc looks to usher in this paradigm shift by unlocking secure and compliant DeFi access for financial institutions across the globe.
In general, permissioned protocols like Aave Arc can offer the decentralization benefits of DeFi, while allowing only permissioning (whitelisting) to be more centralized for KYC/AML purposes.”
Aave CEO Stani Kulechov first hinted at the new platform in July of last year as part of a broader vision to help integrate institutions into the DeFi space.
“I think the larger vision of the Aave Arc market is to create a more comfortable risk appetite for institutions to participate in decentralized finance before, for example, having the risk appetite to participate towards the permissionless decentralized finance, which is the bigger vision offering,” said Kulechov.