Aave V4 moved closer to a major institutional expansion after Aave Labs proposed deploying the lending protocol on Arc, the blockchain network developed by Circle.
The proposal was published on May 29 through Aave’s Temp Check governance process and asks community members to support a launch on Arc ahead of the network’s expected mainnet debut in summer 2026.
If approved, the plan would position Aave as a core lending infrastructure provider for institutions using Circle’s stablecoin-focused ecosystem.
Aave said the proposal includes a commitment to contribute at least $2 million annually to the Aave DAO for five years.
The contribution would total $10 million and support long-term ecosystem development. Circle chief executive Jeremy Allaire has also publicly supported the proposed integration between the two platforms.
Arc targets institutional stablecoin activity
Circle designed Arc as a public layer one blockchain focused on stablecoin liquidity and tokenized real-world assets.
The network uses USDC to handle transaction fees and supports infrastructure aimed at regulated institutional finance. Circle previously confirmed that BlackRock, Visa, AWS, Curve, Maple, and Aave participated in Arc’s public testnet during 2025.
According to Circle, Arc has already processed more than 150 million transactions from approximately 1.5 million wallets.
The network recently moved beyond its testnet phase as Circle increased efforts to expand stablecoin usage into settlement systems and capital markets.
Aave views the launch as a direct opportunity to connect its lending products with institutions entering Circle’s ecosystem.
Aave’s Horizon platform already allows institutions to borrow stablecoins against tokenized assets, including US Treasury products.
Horizon reportedly exceeded $580 million in deposits by late 2025. The DAO roadmap for 2026 also targets $1 billion in deposits through partnerships involving Ripple, Franklin Templeton, and VanEck.
Aave V4 introduces a new liquidity structure
Aave V4 introduces a Hub and Spoke liquidity system intended to improve scalability across blockchains.
Under the design, each blockchain contains a central liquidity hub while separate spoke markets access shared liquidity using independent risk settings.
Aave believes the structure can support larger institutional trading activity more efficiently than earlier versions.
The protocol also adopts the ERC 4626 vault standard, which removes the rebasing mechanism currently used by Aave aTokens.
The update is expected to simplify accounting, auditing, and tax reporting for institutions integrating the protocol.
Governance tensions remain active
The Arc proposal arrives while governance disagreements surrounding Aave V4 continue inside the community.
Earlier proposals linked to the V4 rollout narrowly passed during governance voting, while some contributors criticized voting concentration and project centralization concerns. Additional V4 deployment discussions are also active on Ethereum and Avalanche, while Babylon Labs has proposed adding native Bitcoin collateral support through separate spoke markets in the future.
