Aave DAO Launches $100M Fixed-Yield Loan, Tokenizes Bonds and Securities

The fixed-yield loan locks 33,000 Ethereum (ETH) for three months, supported by a non-custodial smart contract from IntoTheBlock's institutional DeFi

Aave DAO, IntoTheBlock, TokenLogic, and decentralized data aggregator IntoTheBlock have joined forces to launch a fixed-yield loan worth $100 million. The loan will be locked for three months in a non-custodial smart contract from IntoTheBlock’s institutional DeFi solutions.

Lenders will receive aETH tokens as collateral, ensuring a yield that is double the rate earned from staking in ETH. The fixed-yield loan is designed to resemble a tokenized bond or security, with interest payments linked to the Aave protocol’s revenue. This setup aims to strike a balance of interests and reduce the “wrong-way risk” typically associated with traditional structures.

The loan allows investors to participate in a fixed-yield opportunity by supplying capital in the form of ETH and receiving aETH tokens as collateral. aETH is a synthetic derivative asset that bridges the currently illiquid Ethereum 2.0 and the regular Ethereum network.

The fixed-yield loan showcases how tokenization and blockchain technology can revolutionize the issuance and management of bonds and securities. This process involves tokenizing traditional bonds or securities, creating digital assets that can be securely traded on blockchain networks.

This initiative is part of a broader trend in the securities tokenization sector, which saw BlackRock paying out $2.1 million in dividends in July. Other key players in this space include Ondo Finance and Franklin Templeton, with a combined market capitalization exceeding $1.3 billion.

The launch marks a significant step for the Aave DAO, utilizing a model from Aave v3 to support assets that are correlated with ETH. It aligns with the broader effort to integrate Liquid Restaking Tokens (LRTs) on Mellow Finance’s Symbonic restaking protocol, alongside Lido DAO.

The initiative aims to address the challenges faced in providing access to term debt in the industry. Due to their volatility and illiquidity, efforts to use governance tokens as collateral in creating on-chain “bonds” have faced difficulties. These structures have tended to favor borrowers, exposing lenders to high risks without proportionate rewards.

In response to these challenges, restaking has emerged as one of the most interesting crypto narratives in 2024. Data on Dune shows that 27.86% of ETH supply is staked. This effort has also seen a steady increase in staked ETH (stETH), reaching over 34 million, and validators crossing one million.

A recent report by CoinGecko highlighted the contribution of EigenLayer's restaking to the Ethereum ecosystem in Q1 2024. BeInCrypto also covered the launch of Symbiotic in mid-June, which aims to offer decentralized, flexible restaking options.

This initiative follows a $5.8 million funding round from Paradigm and Cyber Fund. The new project poses a significant challenge to EigenLayer, a major player in the Ethereum restaking sector.

These developments showcase the continuous innovation and new possibilities emerging in the digital asset industry, setting the stage for secure, balanced, and mutually beneficial financial products in decentralized finance.

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