Babylon Pushes Native Bitcoin Lending Proposal Closer to Reality on Aave V4
Babylon proposal moves to community feedback stage
Babylon Labs has advanced a proposal to let users borrow stablecoins on Aave V4 using native Bitcoin as collateral. The proposal entered the Request for Comment (ARFC) stage on Wednesday, meaning it is now open for community feedback and risk analysis before any further votes.
Under the plan, users would lock their Bitcoin in vaults on the Bitcoin network and borrow against it on Aave. A non-transferable token on Ethereum would represent the collateral, while the Bitcoin itself stays on its native blockchain — no bridging or wrapping required.
Key details of the proposal
- Babylon Labs submitted the formal proposal to integrate native BTC collateral into Aave V4.
- The proposal follows an initial submission on May 25 and a preliminary community vote that passed on June 10.
- Aave DAO would receive the first $500,000 in qualifying annual revenue generated by the integration.
- The proposal is currently at the ARFC stage, awaiting community feedback and risk analysis.
- If consensus is reached, it would move to an offchain Snapshot vote requiring at least 320,000 AAVE-equivalent votes in favor, followed by a formal onchain vote.
How this differs from existing Bitcoin lending
Aave already supports loans against tokenized Bitcoin through tokens like Wrapped Bitcoin (WBTC) and Coinbase Wrapped Bitcoin (cbBTC). These wrapped tokens rely on custodians to hold the underlying Bitcoin, which introduces counterparty risk — the risk that the custodian could fail or act maliciously.
Babylon's approach keeps Bitcoin on its native blockchain, removing the need for a custodian and the associated risks that come with wrapped tokens.
What comes next
The proposal must first pass community feedback and risk analysis at the ARFC stage. If it gains consensus, it will move to a three-day offchain Snapshot vote. That vote requires at least 320,000 AAVE-equivalent votes in favor before advancing to a formal onchain vote, which has its own quorum and approval requirements.
Sources
Newisty Editorial Team covers technology, cryptocurrency, digital products, online platforms, developer tools and the wider digital economy. Our content is researched from official sources, company announcements, public documentation, market data and other primary or reputable sources. Articles are reviewed and edited before publication for clarity, accuracy and useful context.