Babylon proposes native Bitcoin collateral for Aave V4
- Babylon Labs has proposed enabling users to borrow stablecoins against native Bitcoin through Aave V4.
- The plan uses Trustless Bitcoin Vaults to secure Bitcoin directly on its own network without transferring custody to a third party.
- The proposed integration could expand Bitcoin’s role in decentralised finance while creating additional borrowing demand for wrapped Bitcoin.
Babylon Labs has proposed adding native Bitcoin (BTC) as collateral on Aave V4, allowing users to borrow stablecoins against their holdings.
The proposal introduces two Aave V4 components, enabling Bitcoin-backed borrowing and a separate mechanism for handling liquidations.
Babylon’s Trustless Bitcoin Vaults lock BTC on the Bitcoin network and use cryptographic proofs to govern withdrawals without third-party custody.
The integration aims to let Bitcoin holders access decentralised lending without wrapping their BTC or transferring it to a custodian.
Aave V4 requires ERC-20 collateral, so restricted internal tokens would represent locked Bitcoin positions without becoming transferable or tradable assets.
The proposal also introduces a revenue-sharing arrangement between Aave DAO and the Babylon Foundation, with allocations depending on qualifying annual revenue.
Babylon says its staking protocol has activated more than 100,000 BTC cumulatively and currently holds approximately 40,772 BTC, worth around $3.37 billion.
The integration remains subject to Aave governance and risk controls before native Bitcoin-backed borrowing can become available.
