Why Aave Is Building its Next Generation of Markets on Arc

For most of its history, onchain lending has meant one thing: borrowing against crypto. Aave helped build that market, and it remains one of the foundational use cases in onchain finance. But Aave has never treated crypto collateral as the ceiling.

As Treasuries, equities, commodities, and currencies move onchain, Aave is the infrastructure to borrow and lend against all of them. That is why Aave V4 went live on Arc alongside Arc mainnet on September 16, 2026, with USDC, EURC, cirBTC, and WETH available from launch.¹

We spoke with Luigi D'Onorio DeMeo, CBO of Aave, about why Arc was the right place for Aave's next generation of markets, and what the combination could unlock for financial institutions.

Why Aave and Arc fit together

Aave's path to Arc starts with Circle, a relationship that has worked in both directions. In DeMeo's telling, Aave has played an important role in the growth of USDC, and Circle has been instrumental in Aave's success.

Each side brings something the other needs. Aave contributes network effects and deep lending liquidity. Circle contributes USDC, distribution, infrastructure, and relationships with financial institutions. Arc combines both on a single platform. When Aave learned about Arc's traction and institutional partners, building there early was an easy call.

"We think 1 plus 1 equals three here, and that we'll be able to build a lot of liquidity, and hopefully bring net new participants into the market," DeMeo said.

That last point matters most. The goal is to grow the lending market itself by bringing in assets and participants that onchain finance has not reached yet, rather than shifting existing activity from one network to another.

Tokenized equities: the next lending market

Of all the new assets that could come into onchain lending, DeMeo sees tokenized equities as the biggest opportunity.

"I think tokenized equities is probably the most exciting opportunity in the blockchain space since the advent of the stablecoin," he said.

He sees two reasons for that excitement. The first is access. Demand for digital dollars showed how many people outside the U.S. want fast, simple exposure to the U.S. economy. Tokenized equities could extend that same access to U.S. stocks.

The second is utility. In traditional markets, an individual investor usually earns nothing when the shares in their brokerage account are lent out. An onchain lending market can change that. Holders could earn when others borrow their assets, and borrowers can tap aggregated liquidity in a transparent venue.

DeMeo is clear that this will take time. The tokenized securities market still needs regulatory clarity and common standards. Today, the same underlying equity can exist in many different tokenized forms, and every version splits liquidity further. Without aggregated liquidity, onchain markets may struggle to outperform the ones they aim to improve on. That is why a platform designed to concentrate liquidity for stablecoins and tokenized assets, as Arc is, matters for this category.

FX and non-USD credit markets

Stablecoins also open the door to onchain FX, a market DeMeo believes the industry has yet to build at scale. Large onchain FX markets and carry trades remain largely untapped, and he sees Circle as well positioned to lead.

Aave V4 on Arc already reflects this. Its launch configuration includes a dedicated Forex Spoke where USDC and EURC can each be posted as collateral and borrowed against the other.²

The near-term case is straightforward: when currencies move, markets need enough liquidity in place to act. The longer-term case is broader. As neobanks and financial apps serve users across jurisdictions, many of those users will hold dollars while needing to borrow or spend in their local currency. Local-currency stablecoins, onchain FX, and settlement through Circle StableFX on Arc give institutions far more flexibility in how they manage that.

What institutions need to participate

New assets alone won't bring institutions into onchain lending. They also need market structures that reflect how they manage risk and information.

Differentiated risk with hub and spoke

DeFi's original pooled model worked well for relatively simple crypto collateral. But risk sits on a spectrum, and institutions want to choose where they sit on it.

Aave V4's hub-and-spoke model groups more uniform types of risk together, so lenders can decide which collateral and counterparties they are comfortable lending against. The model is also designed to share liquidity across hubs through credit lines. As more hubs come online, liquidity built up in one market can help lower borrowing costs or deepen liquidity in a newer one.

Privacy as core infrastructure

The second requirement is privacy.

"It'll be very difficult for blockchain to hit mainstream scale without any privacy features," DeMeo said.

A consumer does not want a simple payment to reveal their entire financial history. A company does not want payroll visible to the world. DeMeo sees privacy becoming a standard feature of blockchain infrastructure instead of a separate product category. For lending, that can mean keeping financial flows transparent while protecting the identities behind them, which is closer to how traditional markets already operate.

Arc's upcoming opt-in privacy features are designed with that balance in mind: selectively shielding sensitive transaction details while preserving auditability.

A lending market for every asset

Looking ahead, DeMeo describes an Aave that becomes the venue where markets discover supply, demand, and the prevailing rate for nearly any asset: Treasuries, equities, crypto assets, gold, oil, real estate, and asset classes that do not exist yet.

That is a far larger opportunity than today's DeFi lending market. It requires a platform where stablecoins, tokenized assets, and institutional participants can operate together. Arc, the Economic OS for the internet, was built to be that platform.

For Aave, Arc is where its liquidity and Circle's reach can compound, and where onchain lending can grow to cover every asset class.

Ready to build the next generation of onchain markets? Start building on Arc.

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