DeFi Protocols

Aave V3 Lending/Borrowing

Overcollateralized lending — $24.8B TVL, algorithmic liquidation. Aave Horizon adds institutional KYC layer.

Vendors

Aave · Aave Horizon

Compliance center

Algorithmic liquidation engine at Authorization. Horizon adds Identity gate.

defilendingaaveliquidationflash-loaninstitutional-defiovercollateralized
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D2 · DEFIAave V3 lending·5 stations(2 compliance, 3 infra)·aave
S1INTENTS2S3DISCOVERYS4NEGOTIATIONS5S6S7FACILITATIONS8FINALITY01Smart Wallet02Oracle Feed03Settlement04Liquidation Engine05Smart Wallet
3+5 shape system
GatePre-condition — blocks if it failsMonitorConcurrent — observes without haltingObligationPost-settlement — reports after the factsolid = codedashed = policy
How to read this diagram
Each station on the rail represents a compliance or infrastructure event in the Aave V3 lending path. Hover any station to inspect it. The shape tells you what kind of event it is. The ring tells you how it's enforced.
Gate Monitor Obligation| Ingress Crossing Transform Settlement Venue
This path at a glance
5 stations across 5 of 8 segments. 2 are compliance checkpoints, 3 are infrastructure.
4 code-enforced1 policy-enforced
D2 · AAVE V3 LENDING · ETHEREUM
00
Mandate
01
Intent
02
Identity
03
Discovery
04
Negotiation
05
Transport
06
Authorization
07
Facilitation
08
Finality
09
Disposition
L5 APPLICATIONL4 ACCOUNTL3 EXECUTIONL2 CONSENSUSL1 NETWORKETHEREUM
L5 APPLICATIONWALLET
L4 ACCOUNTWALLET

Step 1 · Supplier WalletPolicy-Enforced

"Depositor in traditional bank. Supplies collateral, earns variable interest on supplied assets."

User self-custody wallet supplies collateral (ETH, USDC, DAI, etc.) to Aave V3 lending pool. On Aave Horizon (institutional variant), supplier address must be whitelisted and subject to KYC/AML. On permissionless Aave V3, anyone can supply — no identity layer. Enforcement is policy-level (frontend geo-blocking and asset-level freezes like USDC) rather than protocol-enforced. Supply action mints aTokens (interest-bearing tokens) to supplier wallet.

Counterparty
Aave protocol (algorithmic lending pool)
Latency
1-15 seconds (L1) to 2-5 seconds (L2)
Finality
Finalized on chain confirmation
Vendors
MetaMask · MetaMask Institutional (ConsenSys-operated; institutional custody/MPC integrations) · Fireblocks · Safe (Gnosis Safe — multisig + module framework) · EOA (secp256k1 externally-owned accounts) + ERC-4337 account abstraction (EntryPoint singleton + UserOperation mempool — paymaster and aggregator extensions) · Securitize LLC (SEC-registered transfer agent; runs Reg D 506(c)(2)(ii) accredited-investor verification workflow) — off-chain compliance function paired with on-chain DS Protocol enforcement · EigenLayer (restaking primitive — slashing-conditional re-pledge of staked ETH and LSTs to Actively Validated Services; compliance-relevant for AVSs that supply oracle / fast-finality / DA security to downstream protocols) · Securitize Markets ATS (SEC-registered ATS) · INX Securities ATS · BlackRock BUIDL · Franklin BENJI · Hashnote USYC · Ondo OUSG · Apollo ACRED (Ethereum mainnet deployments; issuer profiles carry SEC-registered / NYDFS limited-purpose trust / Reg D 506(c) postures detailed in the respective compliance frameworks)
Chain
Ethereum (Ethereum Foundation (protocol research + core-dev grants; protocol itself is permissionless and operated by the validator set))
L5 APPLICATIONL4 ACCOUNTL3 EXECUTIONL2 CONSENSUSL1 NETWORKETHEREUM
L3 EXECUTIONORACLE
◆ Enforcement Line — code-enforced at this layer

Step 2 · Oracle Price FeedCode-Enforced

"Real-time market data feed. Determines collateral valuation for borrowing power."

Chainlink oracle (primary) or Aave Lens oracle (secondary) pushes current market prices for supplied collateral. Health factor calculation depends on oracle price—if price drops, health factor approaches liquidation threshold (1.0). No jurisdiction sensitivity; oracle feed is global market data. Code-enforced via smart contract logic.

Counterparty
Chainlink or Aave oracle operators
Latency
2–10 minutes (oracle heartbeat)
Finality
Real-time feed, not finalized
Vendors
Uniswap v4 (extensible AMM — concentrated liquidity + custom-logic extension framework) · Curve · Balancer · Chainalysis OFAC Oracle (on-chain SDN-list enforcement primitive · code-enforced at the contract layer for opt-in callers) · Circle CCTP v2 (canonical USDC burn-and-mint cross-chain transport) · Wormhole · LayerZero · Across (intent-based settlement) · Securitize DS Protocol (on-chain transfer-restriction smart-contract framework enforcing eligible-investor whitelisting) · ERC-3643 / T-REX (industry-standard permissioned-token framework — Tokeny-developed, used by issuers outside the Securitize stack)
Chain
Ethereum (Ethereum Foundation (protocol research + core-dev grants; protocol itself is permissionless and operated by the validator set))
L5 APPLICATIONL4 ACCOUNTL3 EXECUTIONL2 CONSENSUSL1 NETWORKETHEREUM
L4 ACCOUNTSETTLEMENT
L3 EXECUTIONSETTLEMENT
◆ Enforcement Line — code-enforced at this layer

Step 3 · Borrow ExecutionCode-Enforced

"Loan issuance. Borrower receives stablecoins or assets; Aave accrues interest algorithmically."

Borrower initiates borrow transaction against supplied collateral. Aave V3 algorithm checks health factor: (collateral value × LTV) / borrowed amount. If health factor > 1, borrow succeeds. Interest rate is set by utilization curve (determined by governance) — no human underwriting, no credit committee. Aave IS the lender; borrowed amount is minted debt tokens (variableDebtToken). Code-enforced via smart contract; no approval or discretion.

Counterparty
Aave lending pool (algorithmic)
Latency
1-15 seconds (L1) to 2-5 seconds (L2)
Finality
Finalized on chain confirmation
Vendors
Uniswap v4 (extensible AMM — concentrated liquidity + custom-logic extension framework) · Curve · Balancer · Chainalysis OFAC Oracle (on-chain SDN-list enforcement primitive · code-enforced at the contract layer for opt-in callers) · Circle CCTP v2 (canonical USDC burn-and-mint cross-chain transport) · Wormhole · LayerZero · Across (intent-based settlement) · Securitize DS Protocol (on-chain transfer-restriction smart-contract framework enforcing eligible-investor whitelisting) · ERC-3643 / T-REX (industry-standard permissioned-token framework — Tokeny-developed, used by issuers outside the Securitize stack) · EOA (secp256k1 externally-owned accounts) + ERC-4337 account abstraction (EntryPoint singleton + UserOperation mempool — paymaster and aggregator extensions) · Securitize LLC (SEC-registered transfer agent; runs Reg D 506(c)(2)(ii) accredited-investor verification workflow) — off-chain compliance function paired with on-chain DS Protocol enforcement · EigenLayer (restaking primitive — slashing-conditional re-pledge of staked ETH and LSTs to Actively Validated Services; compliance-relevant for AVSs that supply oracle / fast-finality / DA security to downstream protocols)
Chain
Ethereum (Ethereum Foundation (protocol research + core-dev grants; protocol itself is permissionless and operated by the validator set))
L5 APPLICATIONL4 ACCOUNTL3 EXECUTIONL2 CONSENSUSL1 NETWORKETHEREUM
L3 EXECUTIONLIQUIDATION
L2 CONSENSUSLIQUIDATION
◆ Enforcement Line — code-enforced at this layer

Step 4 · Liquidation EngineCode-EnforcedINGESTDETECTALERT

"Automated collateral seizure. Traditional finance counterpart: forced sale to recoup lender losses."

Aave Health Factor Monitor tracks: (collateral value × LTV) / borrowed amount. When health factor < 1, collateral is underwater. Any liquidator bot can call liquidateCall() to seize collateral and repay borrower debt, earning a liquidation bonus (typically 5-10% of seized collateral). This is permissionless and code-enforced — no discretion, no human approval. Liquidation is the compliance center of gravity in Aave: algorithmic risk management replaces traditional credit committees.

Counterparty
Liquidator bots (permissionless)
Latency
Seconds (automated monitoring + execution)
Finality
Finalized on chain confirmation
Vendors
Ethereum Proof-of-Stake (Beacon Chain — Casper FFG finality + LMD-GHOST fork choice) — permissionless 32-ETH stake threshold; effective validator economics concentrated via Lido / Coinbase / Binance / Kraken / Figment staking pools · MEV-Boost relays (Proposer-Builder Separation — out-of-protocol; OFAC-compliant relays Flashbots / BloXroute Regulated have periodically dominated relay share) · Uniswap v4 (extensible AMM — concentrated liquidity + custom-logic extension framework) · Curve · Balancer · Chainalysis OFAC Oracle (on-chain SDN-list enforcement primitive · code-enforced at the contract layer for opt-in callers) · Circle CCTP v2 (canonical USDC burn-and-mint cross-chain transport) · Wormhole · LayerZero · Across (intent-based settlement) · Securitize DS Protocol (on-chain transfer-restriction smart-contract framework enforcing eligible-investor whitelisting) · ERC-3643 / T-REX (industry-standard permissioned-token framework — Tokeny-developed, used by issuers outside the Securitize stack)
Chain
Ethereum (Ethereum Foundation (protocol research + core-dev grants; protocol itself is permissionless and operated by the validator set))
L5 APPLICATIONL4 ACCOUNTL3 EXECUTIONL2 CONSENSUSL1 NETWORKETHEREUM
L5 APPLICATIONWALLET
L4 ACCOUNTWALLET
◆ Enforcement Line — code-enforced at this layer

Step 5 · Borrower PositionCode-Enforced

"Borrower outstanding debt. Must repay to reclaim collateral, or face liquidation."

Borrower's variableDebtToken balance represents outstanding borrowed amount. Borrower must repay debt (principal + accrued interest) to recover supplied collateral. Repayment burns debt tokens and reduces collateral lockup. If repayment is not made and health factor falls below 1, liquidator can seize collateral without borrower consent. All logic is code-enforced via smart contract.

Counterparty
Aave protocol (debt holder)
Latency
1-15 seconds (L1) to 2-5 seconds (L2)
Finality
Finalized on chain confirmation
Vendors
MetaMask · MetaMask Institutional (ConsenSys-operated; institutional custody/MPC integrations) · Fireblocks · Safe (Gnosis Safe — multisig + module framework) · EOA (secp256k1 externally-owned accounts) + ERC-4337 account abstraction (EntryPoint singleton + UserOperation mempool — paymaster and aggregator extensions) · Securitize LLC (SEC-registered transfer agent; runs Reg D 506(c)(2)(ii) accredited-investor verification workflow) — off-chain compliance function paired with on-chain DS Protocol enforcement · EigenLayer (restaking primitive — slashing-conditional re-pledge of staked ETH and LSTs to Actively Validated Services; compliance-relevant for AVSs that supply oracle / fast-finality / DA security to downstream protocols) · Securitize Markets ATS (SEC-registered ATS) · INX Securities ATS · BlackRock BUIDL · Franklin BENJI · Hashnote USYC · Ondo OUSG · Apollo ACRED (Ethereum mainnet deployments; issuer profiles carry SEC-registered / NYDFS limited-purpose trust / Reg D 506(c) postures detailed in the respective compliance frameworks)
Chain
Ethereum (Ethereum Foundation (protocol research + core-dev grants; protocol itself is permissionless and operated by the validator set))

Resolved 5 steps across 1 chain(s). 0 threshold(s) triggered. Frameworks: Common Reporting Standard / FATCA.

Coverage notes: 5 disclosed gap(s).

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SETTLEMENT CHAINS
EthereumBaseAvalanche
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