Key facts
- Users would lock BTC in vaults on the Bitcoin network and borrow against it on Aave.
- A non-transferable token on Ethereum would represent the collateral.
- Aave DAO would receive the first $500,000 in qualifying annual revenue from the integration.
- Aave currently supports loans against wrapped Bitcoin tokens like WBTC and cbBTC.
Babylon Labs has submitted a proposal to the Aave V4 decentralized finance protocol that would allow users to borrow stablecoins using native Bitcoin as collateral. The proposal, which entered a new governance stage on Wednesday, aims to avoid the counterparty risks associated with existing wrapped Bitcoin tokens like WBTC and cbBTC. Under the proposed system, users would lock their BTC in vaults on the Bitcoin network, with a non-transferable token on Ethereum representing the collateral. The BTC would remain on its native blockchain. Aave DAO would receive the first $500,000 in qualifying annual revenue generated by the integration. The proposal is currently in the Aave Request for Comment (ARFC) stage, requiring community feedback and risk analysis before potentially proceeding to offchain and then onchain votes.