The more i looked at the aave integration, the more it changed how i saw tbv.
the btc never leaves bitcoin but ethereum still needs something to point at. so the vault mints vaultbtc, a transfer-restricted erc-20 that mirrors the locked position and aave's lending market treats that mirror as collateral instead of the actual coin.
that's a subtle substitution.
vaultbtc isn't a claim ticket redeemable by anyone, it's non-transferable and only meaningful because the ethereum contract and the bitcoin script agree on the same state.
at first that sounded like just an accounting trick.
but the real work is keeping two chains' views of one deposit synchronized, since aave's liquidation logic has to trust that vaultbtc's balance reflects bitcoin truth at all times.
if a liquidation triggers, settlement happens through a separate swap spoke, denominated in wrapped btc rather than the native asset itself.
so the exit path isn't identical to the entry path.
that's worth noticing.
borrowers get native btc collateral going in but liquidators receive a wrapped representation coming out.
a quiet asymmetry.
does that back-end reliance on wbtc reintroduce the custodial exposure tbv was built to remove or is it contained enough not to matter?
@BabylonLabs_io
#baby $BABY
the btc never leaves bitcoin but ethereum still needs something to point at. so the vault mints vaultbtc, a transfer-restricted erc-20 that mirrors the locked position and aave's lending market treats that mirror as collateral instead of the actual coin.
that's a subtle substitution.
vaultbtc isn't a claim ticket redeemable by anyone, it's non-transferable and only meaningful because the ethereum contract and the bitcoin script agree on the same state.
at first that sounded like just an accounting trick.
but the real work is keeping two chains' views of one deposit synchronized, since aave's liquidation logic has to trust that vaultbtc's balance reflects bitcoin truth at all times.
if a liquidation triggers, settlement happens through a separate swap spoke, denominated in wrapped btc rather than the native asset itself.
so the exit path isn't identical to the entry path.
that's worth noticing.
borrowers get native btc collateral going in but liquidators receive a wrapped representation coming out.
a quiet asymmetry.
does that back-end reliance on wbtc reintroduce the custodial exposure tbv was built to remove or is it contained enough not to matter?
@BabylonLabs_io
#baby $BABY