Key Takeaways:
- Chainlink introduced CustodySync, a new solution that connects loan markets in DeFi and qualified custody.
- The launch partner is Anchorage Digital Bank, with institutional clients able to borrow collateral that stays in Anchorage.
- According to Chainlink, there are approximately $700 billion of digital assets caged in custodians and could be directed toward onchain lending.
Chainlink is enabling an alternative path for institutional funds to join the DeFi space without moving assets out of regulated custody.
The company introduced CustodySync with Anchorage Digital Bank as its first partner, targeting institutions that want DeFi liquidity but still need qualified custody, internal controls and strict risk management.
Chainlink CustodySync Connects $700B in Custodied Crypto to DeFi
Traditional custody markets account for about $250 trillion, according to Chainlink, compared to an estimated $700 billion worth of digital assets in custody. Meanwhile, DeFi lending markets have over $30 billion in active locked-up loans and over $80 billion in deposits.
Its purpose is to harmonize those two systems, CustodySync. An institution does not have to move the assets to the lending protocol, it can hold them with a qualified custodian and then put them to use onchain to borrow.
Anchorage Digital Bank serves as the official launch partner and uses its Atlas Collateral Management infrastructure to coordinate collateral, margin monitoring and liquidation processes.
Read More: SEC Proposes New Crypto Custody Rules to Unlock Multi-Trillion Dollar Market Access
Collateral Stays in Custody While Loans Move Onchain
The balance of collateral remains in the control of the custodian with the structure. Chainlink Proof of Reserve publishes the custody balances onchain, and a transfer restricted receipt token is the collateral in the lending market. The token mirrors the amount held in custody but does not create an independent claim outside the lending arrangement.
The borrowed assets then flow directly from the DeFi market to the institutional borrower.
Chainlink Data Feeds would feed prices to the lending protocol, while Data Streams would pass the prices up to the custodian’s off-chain systems. That helps to minimize the potential for the two parties to do inconsistent liquidations or for them to determine different loan-to-value ratios.
Chainlink Uses CRE, Proof of Reserve and Data Feeds in One Stack
CustodySync combines several Chainlink products into a single institutional workflow.
The Chainlink Runtime Environment is responsible for managing interactions between the custody systems and the onchain markets. Proof of Reserve is used to complete balance checks on the system and Data Feeds and Data Streams help to ensure the values of the collaterals are consistent across both environments.
When a position exceeds its limits, the appointed collateral agent ensures the process of a sale is run. During liquidation, CustodySync makes sure the lending position doesn’t lose synchronization by onboarding the proceeds onchain before final settlement.
Anchorage Digital Bank is the first qualified custodian to have implemented CustodySync. They said the bank’s already had collateral management working on its Atlas instruments for institutional loans, monitoring, as well as margin call and margin liquidation workflows.
Read More: Standard Chartered Buys 100% of Zodia Custody
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