Babylon Advances Native Bitcoin Lending Proposal on Aave V4
Key Takeaways
- •Babylon Labs proposed allowing users to borrow stablecoins on Aave V4 against native Bitcoin held in vaults on the Bitcoin network.
- •The design would represent locked collateral with a non-transferable Ethereum token while the Bitcoin stays on its native blockchain without being bridged or wrapped.
- •Unlike wrapped Bitcoin assets such as WBTC and cbBTC, which depend on custodians, the Babylon approach would keep collateral on the Bitcoin blockchain itself, removing counterparty risk.
- •The proposal follows an initial submission on May 25 and a temperature check that passed on June 10, with the Aave DAO slated to receive the first $500,000 in qualifying annual revenue from the integration.
- •As of Thursday the proposal sits at the ARFC stage and still requires a three-day Snapshot vote with at least 320,000 AAVE-equivalent votes in favor, a formal onchain vote, and remaining security reviews before launch.
Babylon Labs' proposal to bring native Bitcoin (BTC) collateral to Aave V4 has entered a new stage of governance, although further votes and security reviews remain before any launch.
The Bitcoin-focused development firm has submitted a proposal to the Aave governance forum that would allow users to borrow stablecoins on Aave against native Bitcoin. Aave is a decentralized finance (DeFi) lending protocol, and stablecoins are tokens designed to track the value of fiat currencies such as the US dollar. Under the proposed design, users would lock their BTC in vaults on the Bitcoin network and take out loans against it on Aave. A non-transferable token on Ethereum would represent the locked collateral, while the Bitcoin itself would remain on its native blockchain without being bridged or wrapped.
The Wednesday proposal follows an initial submission on May 25 and a preliminary community vote, known as a temperature check, that passed on June 10, according to Babylon Labs. Under the terms of the proposal, the Aave DAO would receive the first $500,000 in qualifying annual revenue generated by the integration.
Aave already supports loans against tokenized Bitcoin through assets such as Wrapped Bitcoin (WBTC) and Coinbase Wrapped Bitcoin (cbBTC). Wrapped tokens rely on custodians to hold the underlying Bitcoin, which introduces counterparty risk. The Babylon design would instead leave the collateral on the Bitcoin blockchain itself. Because Bitcoin is the largest cryptocurrency by market capitalization, how it is represented as collateral is a central design question for DeFi lending platforms.
As of Thursday, the proposal remains at the Aave Request for Comment (ARFC) stage, where it is open to community feedback and risk analysis. If community consensus is reached, it can proceed to a three-day offchain Snapshot vote, which under Aave's governance rules requires at least 320,000AVE-equivalent votes in favor before advancing to a formal onchain vote. The onchain vote must then meet quorum and approval requirements. Any timeline for a live native BTC market therefore depends on how those steps — along with the remaining security reviews — unfold.
The proposal arrives after Aave launched V4 on Avalanche, laying groundwork for tokenized credit markets.
This report was originally published by Cointelegraph.
