By Shelly Melancon (Switzerland)
Aave, the largest DeFi lending protocol on the Ethereum network, will be launching a private and permissioned liquidity protocol this month. However, the protocol will not be for retail investors; it will rather be for institutional investors. In essence, institutional investors are looking to delve into the decentralized finance space just as they have done in the crypto sphere.
Private Liquidity Pool Announced in May
In May, Aave announced that it would be commissioning a private liquidity pool for large-scale investors. Although this announcement had come after it erroneously uploaded an anti-money laundering notice on Aave’s homepage. Aave’s CEO, Stani Kulechov clarified the error on his official Twitter page, saying it was not meant for that section of the protocol’s website. Rather, it was meant for a private pool being reviewed for investors who were testing the waters before venturing fully into DeFi.
While the crypto space has witnessed the influx of investors such as Grayscale, MicroStrategy, Tesla and a handful of banking institutions into it, the decentralized finance world is one that is new to the incursion of these investors. As expected, it has become a major attraction for both retail and institutional investors owing to its untapped potentials. Interestingly, the past few months have instigated a massive adoption of crypto with Bitcoin and Ethereum topping the list.
KYC Requirements Necessary in New Private Pool
With the launch of the private pool drawing near, Aave has partnered with leading and Israeli-based crypto asset management firm, Fireblocks to oversee KYC guidelines as this is sine qua non for any investor who wishes to partake in the pool. This private and centralized pool has been named Aave Pro and will be distinguished from the Aave’s primary decentralized markets. Essentially, the pool will not be open to the public or general Aave users; only institutional investors who will be screened before they can be onboarded.
Bitcoin, Ethereum, Aave and USDC, a stablecoin are the crypto assets that would initially be offered on the pool. According to Aave, the pools for these assets will be separated from pools in the primary Aave and Polygon markets. Aave also asserted that there will be provision for community governance on the permissioned pools.
However, it remains to be seen how a permissioned pool can be subject to community governance. Staniv Kulechov commented on the reason for the product, saying the options to be integrated on the private pools will cater for specific needs, and the KYC requirements are necessary so that the risk involved would be reduced.
DeFi is now the ripest apple on the tree that everyone is trying to have a piece of. There are numerous and juicy benefits inherent in the space- ranging from staking to liquidity farming, NFTs and lending- with significant APYs and low interest rates. Just as there are perks every investor can take advantage of, the risks are as big as the benefits. Thus, every investor should be on his guard in the Wild West of DeFi.
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