Aave’s $50 million lending plan could lose money without a single default

According to CryptoSlate, Aave is considering a $50 million institutional lending plan that would pair custodied borrower Bitcoin and Ether collateral with DAO assets securing a separate funding source. Aave Labs clarified that a Labs entity acts as the contractual lender, separating the costs of two proposed funding routes.

The proposal involves a 25 million issuance bucket for GHO and up to $25 million of USDC or USDT borrowing against DAO assets. The structure relies on two separate collateral books and repayment obligations. Institutional borrowers would place BTC or ETH with a qualified custodian under a Master Loan Agreement with an Aave Labs entity, while the DAO pledges assets like WETH, WBTC, and AAVE to borrow stablecoins on Aave V3.

CryptoSlate notes that rising variable funding costs could exhaust the interest spread before contracted borrower rates reset, even without any borrower defaults. An illustrative calculation shows that if funding costs rise to 6% while an unchanged loan coupon stays at 6%, the interest spread is eliminated entirely. Additionally, broader crypto price declines could simultaneously weaken both the institutional and DAO collateral pools, creating a liquidity question for the DAO.