Aave V4 proposal would route custodied BTC into onchain borrowing through isolated hubs

The ARFC on Aave’s “Isolated Hub & Spoke” model describes a setup where institutional borrowers pledge BTC sitting at Anchorage and draw stablecoins onchain without the collateral ever touching a blockchain. The connecting piece is a restricted receipt token the filing calls the Custodied Collateral Token, or CoCT.

Anchorage holds the BTC. Chainlink’s CustodySync tracks that custodian balance and mints or burns CoCT accordingly. The underlying collateral stays offchain the whole time — the ARFC is explicit that Chainlink, CustodySync, and Aave never hold it.

The first deployment creates one CoCT instance representing BTC held under Anchorage custody. It’s a non-transferable ERC-20 whose permitted destinations are limited to a fixed allowlist: the Aave V4 Hub, the Spoke, and CustodySync. Only CustodySync can mint or burn it.

Risk segmentation is baked into the structure itself.

If a position sours, the custodian executes an OTC sale of the underlying BTC offchain and uses the proceeds to settle the borrower’s onchain position. In a fast-moving one, how quickly an OTC sale can close against an onchain obligation is a real question — and the ARFC doesn’t answer it.

What the filing leaves open is substantial. Final risk parameters, oracle configuration, caps, and interest-rate strategy for the Custodied Collateral Isolated Hub and Spoke are all still undecided. The community still needs to run a Snapshot vote, possibly followed by a full Aave Improvement Proposal for onchain approval and execution. No timeline is given for either.

Aave Labs published its technical assessment of Arc the same day, September 14, 2026. Arc was still in a private mainnet phase at that point, with public mainnet availability announced for September 16. Per the assessment, USDC is Arc’s native gas asset — native and ERC-20 forms share balances and carry protocol-level blacklist and freeze operations, and Aave would interact exclusively with Arc’s ERC-20 USDC.

Arc’s infrastructure includes 28 Chainlink Data Feeds covering USDC, USDT, ETH, BTC, and AAVE. That matters for this proposal because the lending deployment depends on a defined oracle setup, and oracle configuration is among the parameters the ARFC explicitly defers to later governance.

The CoCT is the proposal’s stated novelty: a receipt token purpose-built to represent offchain custodied collateral inside Aave’s isolated architecture, without that collateral ever becoming a transferable onchain asset. Whether the institutional case holds together depends less on the token itself than on how caps and oracles eventually get set — and whether OTC liquidation can actually clear an onchain position when it needs to.