Chainlink CustodySync lets Anchorage clients borrow in DeFi

Chainlink has launched CustodySync, a system that lets institutions borrow from DeFi lending markets without moving their collateral out of a regulated custodian, with Anchorage Digital Bank as the first custodian to use it, according to a Chainlink announcement on Monday.

The problem it tries to solve

Many funds and companies are required to keep digital assets with a qualified custodian. That rules out the normal DeFi route of depositing coins into a smart contract. Linking a custodian's books to an onchain lender is also awkward: if the two sides value the collateral differently, a loan can be liquidated too early or too late.

Chainlink cites more than $80 billion sitting in DeFi lending markets and about $700 billion in digital assets under custody — figures the company provided and which we have not verified.

How CustodySync works

• Collateral stays put. The institution deposits assets with its custodian, and the custody balance is published onchain through Chainlink Proof of Reserve. Our explainer on what proof of reserves is covers how such checks work and where they fall short.
• A receipt token goes onchain. A transfer-restricted token representing the custodied assets is posted to the lending market. Its supply tracks the assets in custody, and it carries no claim on them outside the lending integration.
• Borrowing is direct. Loans move from the market to the borrower in one transaction, and every borrow, repayment and interest accrual is mirrored in the custodian's records.
• One price source. The market reads Chainlink Data Feeds onchain while Chainlink Data Streams send the same values to the custodian, so both compute loan-to-value from identical data.
• Liquidations go through the custodian. If a loan crosses its threshold, the appointed collateral agent sells the collateral through its own process; the committed proceeds are recorded onchain and final settlement happens in a single atomic transaction.

Anchorage's role

Anchorage Digital Bank, a federally chartered digital asset bank, uses its Atlas Collateral Management product as the collateral agent, monitoring loan health and managing margin and liquidations. "Institutions should not have to choose between qualified custody and onchain liquidity," said co-founder and CEO Nathan McCauley.

What to watch

The first concrete venue is not live yet: an Aave governance proposal describes a "Custodied Collateral Lending" market on Aave V4's isolated hub-and-spoke design that would use CustodySync. It is the latest attempt to plug institutional collateral into Aave after Babylon's native bitcoin collateral plan.

For the basics, see what DeFi is and how liquidation works in crypto.