To support informed business-level decision-making, we have consolidated and articulated our legal assessment of the Cash product’s contractual architecture. Our team undertook a detailed, clause-by-clause comparison of the three operative Ether-fi Cash agreements (Cardholder Agreement (U.S.), Cardholder Agreement (International), Corporate Agreement (International)) that govern the current and prospective customer cohorts.
The key findings from our screening are summarized below. Our initial analysis indicates no legal or regulatory concerns with the product’s setup. Therefore, we recommend continuing to explore the integration process, deeming that it poses no incremental regulatory risk to Aave’s DAO. As further integration details are published, we will conduct additional research to provide targeted risk recommendations.
1. Counterparty Scope
- U.S. Cardholder (consumer): Applies to natural persons who qualify as U.S. persons and successfully complete full KYC. The contract is governed by the laws of Puerto Rico and, subsidiarily, U.S. federal law, with all disputes submitted to AAA arbitration seated in New York.
- International Cardholder (consumer): Covers retail users situated outside the United States who must affirm they are not U.S. persons and pass sanctions screening. Governing-law and venue clauses likewise reference Puerto Rico; arbitral forum remains AAA.
- International Corporate: Addresses non-U.S./non-Canadian legal entities that satisfy KYB requirements. Disputes are referred to LCIA arbitration, seated in the Cayman Islands and governed by Cayman Islands law.
2. Funding Mechanics and Interest Terms
- U.S. & International consumers: Each purchase is matched 1:1 with digital-asset collateral on deposit, creating an over-collateralised revolving line. The smart contract liquidates automatically on default or margin breach. Purchases accrue no interest, and cash-advance functionality is expressly excluded.
- International corporate: Companies may (i) pre-fund in USDC or (ii) draw on a crypto-collateralised facility subject to adjustable minimum ratios. A dashboard provides real-time margin-call alerts. No APR is quoted; instead, the arrangement is framed as non-custodial and fee-based.
3. Liquidation Triggers and Process
- U.S. consumer: A “Liquidation Event” is triggered by any of the following: (a) scheduled periodic sweep; (b) a discretionary sweep within a fixed number of hours after each purchase; (c) non-payment 21 days post-statement due date; or (d) collateral value falling below outstanding charges without timely top-up. Once initiated, the smart contract forecloses automatically, and Ether-fi disclaims any obligation to halt or give prior notice.
- International consumer: The cardholder terms do not enumerate triggers; liquidation is governed by the underlying DeFi lending protocol, which executes when its LTV threshold is exceeded. Ether-fi’s role is limited to charging a contractual liquidation fee; it is not the seller of collateral.
- Corporate: If collateral falls below the stipulated ratio and is not cured, Ether-fi may unilaterally adjust requirements and liquidate. Precise triggers are configurable. Liquidation may occur via the smart contract or a third-party venue designated by Ether-fi after a margin breach.
4. Fee Schedule
- Foreign-transaction fee: A 1 % surcharge applies to every non-USD or cross-border purchase on both consumer cards. Corporate fees—including onboarding, issuance, foreign-exchange, and other charges—are prescribed in a separate in-dashboard schedule.
- Late and penalty fees: The U.S. consumer agreement imposes a 2 % fee on any past-due balance. International consumer fees are deferred to the applicable schedule. Corporate terms authorise a broader spectrum of fees and collateral liquidation upon default.
5. Spending Limits and Administrative Controls
- Consumer (U.S. & International): Spending limits are dynamic, calibrated against posted collateral and real-time risk indicators.
- Corporate: Default limits are risk-weighted, but Program Administrators can configure granular controls—per card, business unit, or time window—through the administration dashboard.
6. Liability Allocation and Consumer-Protection Safeguards
- U.S. consumer: Liability for unauthorised use is capped at $50 upon prompt notification, mirroring Regulation Z and Visa’s zero-liability framework.
- Corporate: Liability resides entirely with the company. Internal corporate policies may redistribute losses among individual users, yet Ether-fi Cash ultimately looks to the corporate entity for restitution.
7. Customer Due-Diligence Requirements
- U.S. consumer: Full KYC - Social Security number, residential address, and OFAC screening.
- International consumer: KYC plus explicit non-U.S. attestation and sanctions screening.
- Corporate: KYB covering formation documents and beneficial-owner identification, supplemented by KYC for every authorised card user. The Program Administrator manages keys and spending parameters.
8. Governing Law and Dispute Resolution
- U.S. consumer: Puerto Rico law (with applicable U.S. federal overlay); AAA arbitration seated in New York or conducted remotely.
- International consumer: Puerto Rico law; AAA arbitration seated in New York or remote.
- Corporate: Cayman Islands law; LCIA arbitration seated in the Cayman Islands.
9. Organisational Structure and Risk Segmentation
Ether .fi SEZC, a Cayman-registered entity, owns the Ether-fi protocol, licenses the “ether.fi” brand, controls the website, and stands as the counter-party under the overarching Terms-of-Use as well as the data-controller for privacy purposes. Two wholly-owned subsidiaries—Ether .fi Cash Ltd (consumer) and Ether .fi Cash [Corporate] Ltd—administer the respective Cash credit-card programmes, including collateral parameters, spend limits, and cardholder contracts. The issuing bank, operating under the Visa licence, is legally distinct from all Ether-fi entities. Each card agreement incorporates the parent’s Terms-of-Use, thereby situating Ether .fi SEZC at the apex of the contractual stack while allowing the Cash subsidiaries to manage card-specific operations and risk.
This tripartite structure intentionally (i) separates regulated card-issuing activities from unregulated crypto operations, (ii) isolates liability across jurisdictions, and (iii) establishes a compliance firewall between traditional banking and DeFi functionality. The agreements underscore this demarcation, noting, for example: “Issuer is not a party to any agreement with the Ether-fi protocol” and “Issuer bears no affiliation to, or liability for, any interaction between you and the Ether-fi protocol.”
10. DeFi Integration as the Credit Engine
The card programs interface directly with decentralized lending pools to furnish users with an over-collateralized USDC revolving line. Because credit is extended by—or through—the DeFi protocol (i.e. Aave in the examined proposal) rather than by the Visa issuer, regulatory obligations bifurcate: front-end purchase transactions remain subject to conventional card-network rules, while KYC/AML and credit-risk oversight migrate to Ether-fi Cash. The three agreements delineate that boundary as follows:
- U.S. consumer: Ether-fi Cash Ltd is expressly the creditor of record; the Visa issuer disclaims lender status. Collateral is foreclosed automatically upon any of four stipulated triggers.
- International consumer: The issuer functions solely as card issuer. LTV monitoring, interest computation, and liquidation are executed by the underlying protocol, while the card terms merely reserve a “Liquidation Fee (Reserved).”
- Corporate: A company may either pre-fund in USDC or pledge crypto collateral to secure a flexible credit line visible in its admin dashboard. Collateral ratios and liquidation parameters remain subject to modification by Ether-fi Cash upon notice.
Conclusion
Taken together, these provisions articulate a sophisticated hybrid model that combines old card systems with new, decentralized money sources, and divides legal risks among different entities and regions.
In light of the foregoing, we consider the Cash product’s legal and compliance architecture sufficiently robust and well-segmented across the relevant entities and jurisdictions. The proposed use of Aave liquidity pools functions strictly as a modular funding conduit within Ether.fi Cash’s credit workflow; it neither transfers nor expands liabilities, fiduciary obligations, supervisory duties, or other regulatory burdens onto the Aave protocol or its governance participants.
Accordingly, we discern no incremental compliance exposure for Aave and are supportive of proceeding with the integration, subject to the continued maintenance of the controls and safeguards outlined above.