SEBA, a bank licensed by the Swiss Financial Market Supervisory Authority, is submitting a proposal to the decentralized credit protocol Aave to become an authorized participant on its institutional platform. The bank claims it is ideally positioned to offer flexible and fully regulated DeFi access to its investors.
Its large institutional client base of crypto companies, hedge funds, private banks, asset managers, and close ties to the crypto ecosystem shows significant interest in accessing returns in DeFi protocols. SEBA, as a licensed crypto bank, aims to provide them with a flexible and fully regulated platform to bring new liquidity to Aave‘s institutional platform.
Decentralized borrowing and lending
In traditional finance, financial institutions such as banks and finance companies serve as intermediaries that facilitate borrowing and lending. In cryptocurrencies, lending and borrowing is possible via decentralized protocols on a blockchain. The intermediary is replaced by smart contracts in pool-based liquidity systems.
Aave is the leading protocol for creating money markets on Ethereum in this regard. Investors earn interest by providing liquidity through loan pools. Borrowers can receive liquidity through these pools at variable or fixed interest rates as long as sufficient collateral is deposited. Once the value of the borrower’s collateral falls below the value of the loan, the position is programmatically liquidated and repaid.
Application for Aave Arc
Aave Arc makes the DeFi protocol accessible to institutional clients, creating a bridge between institutions and DeFi. In doing so, it provides a KYC-required private market where participants can interact with DeFi while remaining compliant with regulatory requirements. Institutional clients of many financial institutions have not been able to deploy liquidity on a large scale on Aave due to various regulatory restrictions.
The Swiss bank applied to Aave’s Governance Forum, relying on the Aave Arc whitepaper. It hopes to gain approval because SEBA applies Know Your Customer (KYC) principles in accordance with FATF guidelines to identify its customers. The bank also claims to have a robust anti-money laundering / counter-terrorist financing (AML/CFT) compliance program in combination with an active license in Switzerland. As a fully regulated digital asset bank, they promise to add significant value to market participants by managing their assets securely in Aave Arc in compliance with the given regulations.