What is your view on the impact that DLT and Blockchain is having in reshaping asset and wealth management? What is the current state of the space and how do you foresee it moving forward?
As demand for decentralized finance (“DeFi”) infrastructure has grown, so too has the profile of users of DeFi protocols—including but not limited to the Aave Protocol. As the protocol built a reputation of security and reliability through 2020, several high net-worth individuals, family offices and certain crypto-aware hedge funds started to utilize the Aave Protocol.

Throughout 2021, other institutional market participants have expressed interest in using the Aave Protocol or related source code. The DeFi market will continue to adapt and evolve in response to this institutional demand.

What solutions does your company offer that asset and wealth management firms should consider?
In 2021, a permissioned version of the Aave Protocol, Aave Arc, was launched to help institutions participation in DeFi in line with these institutions’ internal compliance policies and guidance.

Aave Arc— a version of the software underlying the Aave Protocol with additional smart contracts that allow for the “whitelisting” of users— was introduced to meet institutional market participant demand for DeFi.

It allows for the same transactions as the Aave Protocol, but only with and among “whitelisted” users— i.e., those users that have undergone uniform know your customer (“KYC”) or know your business (“KYB”) onboarding procedures. This whitelisting process, subject to the processes and procedures employed by the whitelisters themselves, allows for a uniform AML/CFT (anti-money laundering and countering the financing of terrorism) compliance as well as transaction monitoring employed by those whitelisters.

Figure 1: Aave ARC Ecosystem

Aave Arc is a separate and independent deployment of the Aave Protocol smart contracts in which each user must be onboarded by a whitelister— a regulated entity that is authorized to conduct the requisite level of KYC/ KYB for users.

Fireblocks successfully submitted and launched as the first whitelister for the initial deployment of the Aave Arc smart contracts. As a whitelisting agent, Fireblocks has already approved “40 licensed financial institutions to participate on Aave Arc as suppliers, borrowers and liquidators.”

As with all DeFi protocols, Aave Arc will continue to progress and grow and whitelisters will be in the unique position to address and shepherd this new evolution of the DeFi ecosystem.

This article is from The Wealth Mosaic's WealthTech Views Report: DLT & Blockchain 2022. Access the full report here