We are pleased to share that an ARFC was posted on the @aave governance forum today. This submission proposes the integration of native Bitcoin as a collateral option within Aave V4 by leveraging Babylon Trustless Bitcoin Vaults (TBV).

Detailed in the plan is the introduction of the Babylon Spoke and the BTCVault Swap Spoke. These two novel Aave V4 Spokes are built to manage borrowing and liquidation settlement. Additionally, the framework incorporates terms for revenue sharing as well as buyback strategies for both AAVE and BABY.

Upon successful approval and implementation, individuals holding Bitcoin will be able to borrow supported assets directly on Aave V4. This is achieved by locking their native Bitcoin in a self-custodial fashion right on the Bitcoin chain, which completely bypasses the need to wrap, bridge, rely on tri-party escrow, or send funds to any third parties.

The designated risk service providers for Aave will be responsible for establishing the specific risk parameters associated with both of these Spokes.

Please note that this entire initiative is subject to the review and formal approval of Aave governance.

https://governance.aave.com/t/arfc-onboard-native-btc-as-collateral-to-aave-v4-via-babylon-trustless-bitcoin-vaults/25845