Circle has added Aave as a lending venue inside its Digital Asset-Backed Borrowing (DABB) service for Circle Mint clients, according to The Defiant, giving institutional borrowers a second protocol for borrowing USDC against Bitcoin-collateralized cirBTC tokens.

The integration follows DABB's September 21, 2026 launch on Arc, Circle's EVM-compatible Layer 1 blockchain. It marks the first expansion beyond the product's original Morpho-only design. As of early October 2026, the Aave integration was still not functional; its activation now lets Mint clients route cirBTC collateral to either protocol.

How DABB operates

Circle runs DABB as a three-step process for eligible institutions that want liquidity without selling their Bitcoin:

• A client deposits native Bitcoin with Circle, which mints cirBTC at a 1:1 ratio.
• Each cirBTC is backed 1:1 by Bitcoin held in reserve at Circle National Trust.
• The token then serves as collateral in third-party on-chain lending markets, where the client borrows USDC.

Circle acts as custodian and token issuer, not as lender. Borrowing rates, available liquidity depth, and liquidation procedures are set by the underlying protocols. Loan positions sit in smart wallets controlled by customers, and each protocol enforces its own liquidation logic against those positions.

The service excludes New York-based customers, a constraint tied to Circle Mint LLC's institutional eligibility framework and not to the lending protocols themselves.

Morpho data set the early benchmark

Morpho's cirBTC market provides the first quantitative read on institutional appetite. Shortly after launch, on-chain data showed nearly $18.86 million borrowed against a liquidity pool of $157.85 million. The market set its liquidation loan-to-value threshold at 86%, meaning a position becomes eligible for liquidation once the loan equals 86% of the underlying Bitcoin's value.

By October 2, 2026, Morpho deposits on Arc had surpassed $500 million. The cirBTC/USDC borrowing market accounted for a large majority of Morpho's early activity on the chain, making the product the de facto anchor use case for Arc at launch.

What Aave's addition changes

Aave's arrival ends Morpho's exclusive hold on the cirBTC lending market and gives borrowers and lenders a venue choice. Circle has externalized lending economics: Aave users will need to study that protocol's collateral factors and liquidation parameters, which differ from Morpho's 86% LTV.

That separation carries operational consequences. An 86% liquidation threshold leaves limited cushion in a sharp drawdown, and borrowers who route to Aave will manage exposure under a different rule set entirely. A venue switch also fragments liquidity between the two protocols, and the deepest borrows will likely concentrate wherever rates and utilization are most favorable at any given moment.

The New York exclusion caps near-term distribution, since several large US financial institutions are headquartered there and cannot access the service in its current structure. Aave's integration extends DABB's protocol reach but does not expand its regulatory perimeter.

Forward outlook

Morpho's early dominance of Arc's deposit base will likely erode as Aave absorbs share, with both protocols now competing for the same institutional flow of Bitcoin-backed borrowing demand. The next operational milestone to watch is whether Circle extends the same custody-and-tokenization framework to additional assets or to non-US jurisdictions that currently fall outside Mint's eligibility map.