Babylon native BTC Aave proposal seeks V4 listing

Babylon native BTC Aave collateral moved from temperature check to a formal ARFC on Oct. 14, asking Aave DAO to activate native bitcoin as collateral on Aave V4 through Trustless Bitcoin Vaults. The proposal would add a Babylon Spoke where native BTC is the only collateral and a BTC Vault Swap Spoke for liquidation settlement, with borrowing stablecoins as the first use case. It is not live and still needs risk parameters, Snapshot support, and an on-chain AIP.

What happened

The Aave governance ARFC by Babylon Labs says depositors would lock BTC in a Taproot UTXO on Bitcoin rather than wrap, bridge, or hand coins to a custodian. An Ethereum-side adapter would represent vaults to Aave because V4 accepts ERC-20 collateral. Liquidation on the Babylon Spoke would seize whole vaults through an adapter; permissionless liquidators could swap seized vaults for wrapped BTC via the Swap Spoke while arbitrageurs handle multi-day Bitcoin redemption. Revenue sharing would send the first $500,000 a year of qualifying revenue entirely to Aave DAO, with Babylon's share rising in bands above that level and a slice reserved for open-market AAVE and BABY purchases.

Aave founder Stani Kulechov replied on the forum with "Strong support from me," calling native BTC the largest pool of idle collateral and a dedicated Bitcoin hub a fit for V4's architecture. Babylon cited its staking protocol's cumulative activation of more than 100,000 BTC, a peak TVL of 72,000 BTC, and about 40,772 BTC staked now—roughly $3.37 billion—plus more than $110 million of project backing. TSN Media summarized the same proposal and stressed that safety claims remain Babylon's until tested at scale.

Why it matters

Most bitcoin in DeFi today is wrapped, and wrappers introduce custodian or bridge risk that many large holders refuse—which is why a Babylon native BTC Aave integration would be a structural shift if TBV works as described. Aave could tap BTC collateral without asking those holders to trust a multisig bridge. The Swap Spoke design is the operational heart: liquidations cannot wait days for Bitcoin settlement, so the proposal decouples immediate wrapped-BTC liquidity for liquidators from slower native redemption for arbitrageurs.

Revenue terms also matter for DAO politics. Front-loading the first $500,000 to Aave and keeping Aave's majority share even in higher bands is an explicit attempt to make the deal pass governance, not only to unlock TVL. Stani's public support raises the odds of a constructive Snapshot but does not replace risk-provider parameters.

If Snapshot fails or risk providers demand conservative caps, Babylon can still pursue other host-chain integrations for TBV; the Aave vote is therefore both a DeFi distribution prize and a public stress test of whether DAO risk committees will underwrite bitcoin that never leaves Bitcoin. Formal verification and multi-firm audits cited in the ARFC are part of Babylon's pitch to risk providers; DAOs have grown wary of novel bitcoin bridges after prior exploit seasons, so documentation quality may matter as much as TVL screenshots in the Snapshot debate.

What's next

Next steps listed in the ARFC are community feedback and risk analysis, then Snapshot, then an AIP with full risk parameters for the Babylon native BTC Aave proposal. Until those parameters exist, borrow caps, liquidation bonuses, and oracle design remain unknown. Related: Base Earn Borrow with Aave and Coinbase post-quantum Bitcoin readiness.