Aave’s proposal to launch Aave Institutional has progressed to the Snapshot stage after an earlier request for comment on the governance forum. The plan would create an offchain, over-collateralized lending business designed to issue dollar stablecoin loans to institutional borrowers against BTC and ETH held with qualified custodians.

Aave Labs is asking the DAO to authorize two funding channels that would operate in parallel: a new GHO facilitator with an initial 25 million GHO bucket, and a separate line allowing up to $25 million of USDC or USDT to be borrowed against DAO balance-sheet assets. The proposal says this structure would let lending begin immediately while GHO support is expanded over time.

How the proposed model would work

Under the framework, loans would be made primarily in USDC or USDT, with GHO used where appropriate and where the market can support it. The DAO balance-sheet route is intended to fund the first loans, while facilitator-minted GHO would gradually take a larger role as issuance scales.

The proposal describes Aave Institutional as a dedicated mechanism for minting GHO against a portfolio of institutional loans backed by BTC and ETH. Those assets would remain with qualified custodians, and the business would target borrowers seeking bilaterally negotiated financing terms that the protocol does not currently provide onchain.

Pricing, demand and expected margin

Borrowers are expected to pay between 6.0% and 8.0% APR, while funding costs are estimated at about 4.5% through either funding path. According to the proposal, the resulting net interest margin of 1.50% to 3.50% would accrue to the DAO.

Aave Labs says Aave Institutional currently has roughly $300 million of deployable borrow demand. The lead facility described in the post is a $20 million loan against BTC, structured at around 60% loan-to-value and described as evergreen with 90-day notice.

Risk controls and governance checks

The proposal says all facilities would be over-collateralized, generally at 60% to 75% loan-to-value, and backed by BTC or ETH held by a regulated qualified custodian. Margin calls and liquidations would be handled by the custodian, with enforcement not carried out by Aave Institutional itself. The structure includes a master loan agreement with the borrower and an account control agreement with the custodian, and it specifies no rehypothecation.

Every funding authorization would still require approval from the GHO Stewards under current DAO policy, using a two-of-three multisig involving Aave Labs, TokenLogic and LlamaRisk. The proposal also says no GHO would be advanced against offchain collateral without steward approval at the time, based on live Stability Module information, and all conversions between GHO and the loan currency would be executed jointly with TokenLogic.

Peg management and offboarding limits

Because GHO minted against offchain collateral can affect the stablecoin’s peg, the proposal lays out conversion rules that include agreeing the route before each swap, tranching trades according to market depth, setting a maximum permitted peg deviation, and reporting each conversion with size, route, price and Stability Module usage. As of Sept. 24, 2026, the Stability Module’s redemption inventory stood at $59.9 million, making the proposed 25 million GHO capacity equal to about 42% of that inventory.

The DAO balance-sheet funding route is presented as a way to reduce immediate pressure on Stability Module inventory because it does not rely on that pool. For eventual shutdown, the proposal notes that removing the facilitator would require its bucket level to be zero, and any wind-down would be limited by term loans of up to 12 months. Regular loan reporting to the forum is also part of the plan.

What comes next

The governance process outlined by Aave Labs called for community feedback at the ARFC stage, then escalation to Snapshot if sentiment was favorable, followed by a formal AIP if Snapshot passes. That AIP would cover registering the facilitator on the GHO token with its initial 25 million GHO capacity and authorizing the use of DAO balance-sheet assets to borrow up to $25 million in USDC or USDT, subject to the stated collateral limits.

If approved, the proposal would open a new external revenue line for the DAO while giving Aave a route into institutional BTC- and ETH-backed financing. For now, the confirmed next step is the Snapshot vote on whether the DAO should move the plan forward.

Source: governance.aave.com