Babylon Proposes Native Bitcoin Lending on Aave V4

Babylon's proposal to bring native Bitcoin collateral to Aave V4 has entered a new governance stage, but more votes and security reviews remain before launch.

Babylon's proposal to bring native Bitcoin collateral to Aave V4 has entered a new management phase, but more votes and security reviews remain before launch.

Bitcoin-focused developer Babylon Labs has launched an offering that allows users to borrow stablecoins against Bitcoin (BTC) on Aave.

Under the hood, users lock their bitcoins in Bitcoin network vaults and borrow against it on Aave. A non-transferable token in Ethereum represents collateral, while BTC itself remains unbridged or locked in its original blockchain.

According to Babylon Labs, Wednesday's proposal follows an initial submission on May 25 and an initial community vote that passed on June 10.

Pursuant to the offering, Aave DAO will receive the first $500,000 of eligible annual revenue generated by the merger.

Aave currently supports loans against tokenized Bitcoin through tokens such as Wrapped Bitcoin (WBTC) and Coinbase Bitcoin (cbBTC). Complex tokens rely on custodians to hold Bitcoin and carry counterparty risks.

As of Thursday, the proposal remains in Aave's request for comment (ARFC) phase, where it will face community feedback and risk analysis.

If the community reaches a consensus, it can proceed to a three-day off-chain Snapshot vote, which, according to Aave's governance rules, requires at least 320,000 AAVE-equivalent upvotes to go to an official on-chain vote.