Aave advances native Bitcoin as collateral via Babylon
📋 Summary
The Aave community unanimously approved a preliminary step to accept native Bitcoin as collateral on Aave V4 through Babylon vaults. The integration still depends on a final vote and is expected to launch on a limited basis, but it promises to enable stablecoin loans without wrapping or bridging.
On November 9, the Aave community unanimously approved the preliminary proposal to use native Bitcoin as collateral on Aave V4 through Babylon’s Trustless Bitcoin Vaults (TBV). If the final governance step is also approved, holders will be able to lock BTC on the Bitcoin network itself and borrow stablecoins such as USDT and USDC.
The decision is significant because it seeks to remove one of Bitcoin’s main points of friction in decentralized finance: the need to convert the asset into a wrapped version, send it over a bridge, or hand it over to a custodian. Despite this progress, the service is not yet available. The proposal will now proceed to an Aave Improvement Proposal (AIP), the binding vote that precedes deployment on the mainnet.
How native Bitcoin will be integrated into Aave V4
According to the announcement from Babylon Labs, BTC will remain locked in a self-custodial vault on the Bitcoin network. A restricted accounting record on Ethereum will allow Aave to recognize this collateral and extend credit, without requiring the user to provide WBTC or another freely transferable token.
The configuration approved in the ARFC phase sets a collateral factor of 78%. In practice, this parameter determines how much of a position can serve as the basis for debt, although safety limits and liquidation conditions will still apply. Initial liquidity will come mainly from the Aave V4 Core Hub, with US$ 21 million in credit lines distributed across USDT, USDC, GHO, USDG, and RLUSD.
A separate Babylon Hub is also planned.
📋 Summary
The Aave community unanimously approved a preliminary step to accept native Bitcoin as collateral on Aave V4 through Babylon vaults. The integration still depends on a final vote and is expected to launch on a limited basis, but it promises to enable stablecoin loans without wrapping or bridging.
On November 9, the Aave community unanimously approved the preliminary proposal to use native Bitcoin as collateral on Aave V4 through Babylon’s Trustless Bitcoin Vaults (TBV). If the final governance step is also approved, holders will be able to lock BTC on the Bitcoin network itself and borrow stablecoins such as USDT and USDC.
The decision is significant because it seeks to remove one of Bitcoin’s main points of friction in decentralized finance: the need to convert the asset into a wrapped version, send it over a bridge, or hand it over to a custodian. Despite this progress, the service is not yet available. The proposal will now proceed to an Aave Improvement Proposal (AIP), the binding vote that precedes deployment on the mainnet.
How native Bitcoin will be integrated into Aave V4
According to the announcement from Babylon Labs, BTC will remain locked in a self-custodial vault on the Bitcoin network. A restricted accounting record on Ethereum will allow Aave to recognize this collateral and extend credit, without requiring the user to provide WBTC or another freely transferable token.
The configuration approved in the ARFC phase sets a collateral factor of 78%. In practice, this parameter determines how much of a position can serve as the basis for debt, although safety limits and liquidation conditions will still apply. Initial liquidity will come mainly from the Aave V4 Core Hub, with US$ 21 million in credit lines distributed across USDT, USDC, GHO, USDG, and RLUSD.
A separate Babylon Hub is also planned.