Babylon's Native Bitcoin Collateral Proposal Moves Forward in Aave V4 Governance
The proposal from Babylon to integrate native Bitcoin as collateral on Aave V4 has progressed to an advanced governance phase, though additional voting rounds and security assessments are required prior to implementation.
Babylon Labs, a developer specializing in Bitcoin infrastructure, has put forward a proposal that would enable users to utilize native Bitcoin (BTC) as collateral for borrowing stablecoins on the Aave platform.
The technical implementation would involve users securing their BTC within vaults directly on the Bitcoin blockchain and using it as collateral for loans on Aave. The collateral would be represented by a non-transferable token issued on the Ethereum network, while the actual BTC would stay on its original blockchain without requiring bridging or wrapping mechanisms.
According to Babylon Labs, the Wednesday proposal represents the latest step following an original submission dated May 25 and an early-stage community vote that successfully passed on June 10.
The proposal includes a revenue-sharing arrangement where the Aave DAO would collect the initial $500,000 in eligible annual revenue that the integration produces.
Currently, Aave provides lending services against tokenized Bitcoin representations including Wrapped Bitcoin (WBTC) and Coinbase Wrapped Bitcoin (cbBTC). These wrapped token solutions depend on custodial entities to maintain custody of the actual Bitcoin, which creates counterparty risk exposure.
According to the current status as of Thursday, the proposal is still under consideration at the Aave Request for Comment (ARFC) phase, during which it undergoes community discussion and comprehensive risk evaluation.
Should the community arrive at a consensus, the next step would be a three-day offchain Snapshot vote, which necessitates a minimum of 320,000 AAVE-equivalent votes supporting the proposal before it can move forward to a binding onchain vote, as specified by Aave's governance framework.
The final onchain vote would need to satisfy both quorum and approval thresholds.