On September 25, lending protocol Aave launched Equities Hub on Base, allowing users to deposit tokenized versions of seven U.S. stocks, including Apple, Nvidia, and Tesla, as collateral to borrow USDC.
A week earlier, rival Morpho had launched a similar market on Base. Two leading lending protocols have turned to tokenized equities at almost the same time, yet actual borrowing activity in this new market remains limited.
Stocks are moving on-chain fast, but the people borrowing against them haven't kept up.
Why Aave Is Looking for New Collateral
Since the beginning of this year, Aave’s share of the lending market has fallen from approximately 59% to 41%, while Morpho’s has risen from 9% to 19% and Spark’s from 5% to 10%. Meanwhile, Aave’s share of the real-world asset (RWA) lending market has dropped from 62% to 33%, and its daily revenue has declined from approximately $261,000 at the start of the year to around $158,000.
This is the business context behind Aave’s effort to broaden its collateral base. Its founder, Stani Kulechov, has argued that the more assets users can pledge as collateral, the more lending opportunities the protocol can create.
Equities are not the only addition. On September 16, Aave also announced plans to launch an institutional RWA Hub on Avalanche, where eligible institutions will eventually be able to use tokenized RWAs as collateral to borrow USA₮, Tether’s stablecoin.
Demand Has Yet to Be Proven
The supply of tokenized stocks is growing rapidly. Their combined market capitalization reached approximately $3.1 billion in early September, up from less than $1 billion at the beginning of the year.
Borrowing demand, however, has not kept pace. Shortly after Aave’s Equities Hub launched, deposits exceeded $8.15 million, while outstanding borrowing stood at approximately $435,000, putting overall capital utilization at just 5.34%. In Morpho’s initial phase, users supplied around $104,000 in collateral and borrowed approximately $55,000. Two vaults managed by Steakhouse, a DeFi vault manager, accounted for 98.9% of liquidity in the largest market.
Assets are moving on-chain quickly, but there is not yet enough evidence to show that they can generate sustained demand for on-chain borrowing. These markets have only recently launched, and the available figures show that activity remains small at this early stage.
The 48-Hour Gap in Price Updates
Aave has integrated the tokenized economic exposure of stocks, but the trading-hour constraints of traditional equity markets have come with it.
Chainlink updates price feeds for these tokens from 8 p.m. Eastern Time on Sunday through 8 p.m. on Friday. During weekends and U.S. market holidays, the feeds retain their last published prices, leaving a 48-hour period each week without updates. According to DeFi risk service provider LlamaRisk, Aave’s market remains open for deposits, borrowing, and liquidations over the weekend.
Two issues need to be distinguished.
First, there is a gap in price information. Suppose a major event involving Nvidia occurs on a Saturday. When the market opens on Monday, the stock could gap up or down, while the protocol would still be valuing the collateral using Friday’s price. LlamaRisk has noted that news emerging while markets are closed could be reflected as a one-off price adjustment when the feed resumes.
Second, there is the question of how Aave manages that gap. When designing the initial risk parameters, LlamaRisk incorporated factors such as weekend and holiday price gaps and liquidation delays into its models. Based on that analysis, it assigned collateral factors ranging from 65% to 79% to the seven stocks.
According to LlamaRisk, USDC suppliers enter this market voluntarily, and its risks are not expected to spill over into Aave’s other markets. Some media analyses have suggested that if price gaps coincide with insufficient token liquidity, bad debt could be left with these suppliers. Whether the parameters can withstand extreme weekend market moves, however, has yet to be tested under real market conditions.
The problem does not end when liquidation is triggered. Liquidation does not automatically turn collateral into cash at the oracle price. The tokenized stocks must actually be sold on the market. If trading depth on Base is insufficient, large forced sales could push prices down further. Actual execution prices could then fall below the prices used by the protocol to calculate collateral values, increasing the risk of bad debt.
This is another constraint facing these markets: assets can be brought on-chain, but on-chain market depth may not keep pace with the amount of collateral being pledged. Analysts have noted that trading in tokenized stocks on Base has grown rapidly, while market depth remains limited.
Nasdaq and NYSE Arca, a subsidiary of the New York Stock Exchange operator, both plan to extend their trading hours to nearly 23 hours a day, five days a week, starting December 6. This would narrow the gap between the operating hours of traditional and on-chain markets. Nasdaq’s proposal was approved by the U.S. Securities and Exchange Commission (SEC) in April this year.
Chainlink also expects to provide 24/7 price feeds for these tokens in the future, although the service has not yet launched.
What Mirror Protocol Teaches Us About the Missing Links
In December 2020, Terraform Labs, the company behind Terra, launched Mirror Protocol, a synthetic-asset protocol that allowed users to mint mAssets tracking the prices of U.S. stocks such as Apple and Tesla, backed by overcollateralized UST. These tokens were not backed by actual shares; they were designed to track stock prices synthetically.
After Terra collapsed in May 2022, the foundation of Mirror’s collateral system disappeared. In August, Band Protocol stopped providing price data for Terra Classic, forcing Mirror’s collateralized debt position (CDP) operations to halt. The protocol eventually became inactive.
The structure today is different. Tokenized stocks issued by crypto exchange Coinbase are backed by actual shares held in segregated custody, giving holders economic exposure to the underlying stocks rather than merely tracking their prices through synthetic assets.
The lesson from Mirror is not that Aave is destined to repeat its fate. It is that putting U.S. stocks on-chain does not, by itself, solve the underlying financial infrastructure problem. If any link in the chain connecting assets, pricing, collateral, and liquidation breaks, the system can still fail.
Aave’s Own Lessons on Collateral Risk
On April 18 this year, Kelp DAO’s cross-chain bridge was exploited, resulting in the theft of approximately 116,500 rsETH, worth around $292 million at the time. The exploit was not caused by Aave. However, the attacker deposited approximately 89,600 depegged rsETH into Aave and borrowed around $190 million in other assets. The resulting bad debt was estimated at between $123.7 million and $230.1 million.
In the aftermath, utilization in Aave’s WETH market remained above 99% for 12.7 consecutive days.
The risks posed by tokenized stocks differ from those of rsETH: the former involve stale prices, while the latter involved a failure of the asset itself. But the underlying problem is similar. The value assigned to collateral by the protocol diverged from its actual market value, while assets had already been borrowed against it.
Both cases point to the same question: can a lending protocol value its collateral accurately and liquidate it effectively?
The Entire Lending Cycle Still Needs to Be Tested
Aave needs more high-quality collateral, which is why it is bringing traditional financial assets on-chain. But once stocks become collateral, the trading-hour constraints, price discovery mechanisms, and liquidity limitations of U.S. equity markets come with them.
Getting stocks on-chain is no longer the main challenge. The real test is whether there are borrowers willing to borrow against them, suppliers willing to provide liquidity, prices that can reflect market changes in a timely manner, and markets deep enough to absorb actual sales when liquidations are triggered.
That is the final link tokenized stocks must establish before they can function effectively as collateral. Moving assets from traditional markets onto a blockchain is relatively straightforward. Connecting assets, pricing, lending, and liquidation into a functioning end-to-end system is much harder.