Babylon Labs has proposed letting people use native bitcoin as collateral to borrow on Aave V4, the latest version of the Aave lending protocol. The proposal, posted on Aave’s governance forum on 14 October 2026, is only a proposal. It has not been approved, is not live, and its risk settings have not yet been set.
What Babylon is proposing
The proposal “requests the activation of native BTC as collateral on Aave V4 via the Trustless Bitcoin Vaults (TBV) protocol.” It would add two new parts to Aave V4, called Spokes: a Babylon Spoke, where native BTC would be the only collateral, and a BTC Vault Swap Spoke, which handles liquidations. According to Babylon, “the first use case is borrowing stablecoins against native BTC.”
Most bitcoin used in decentralised finance today is “wrapped”, meaning a token on another blockchain stands in for BTC held elsewhere. Babylon says its system works differently: the depositor locks BTC in a special address on the Bitcoin network, and “the deposited BTC is not wrapped, bridged or held by a custodian.” These are Babylon’s claims about its own design and have not been independently tested.
Revenue sharing
Under the proposal, the first $500,000 a year of qualifying revenue would go entirely to the Aave DAO, the community that governs Aave. Above that, Babylon’s share would rise in bands. Above $6 million, the proposed split is 61.5% to the Aave DAO, 31.5% to Babylon and 7% to buying AAVE and BABY tokens.
Babylon’s own figures
Babylon says its existing Bitcoin staking protocol has “activated over 100,000 BTC cumulatively, reached a peak TVL of 72,000 BTC, and currently holds ~40,772 BTC (approximately $3.37B) staked.” It says the project is “backed by approximately $110M+”. These are Babylon’s own numbers.
Support and next steps
A reply on the forum from Aave founder Stani Kulechov’s account said: “Strong support from me.”
Babylon says the next steps are to gather community feedback and risk analysis, then hold a Snapshot vote if there is consensus. If that passes, it would submit a formal Aave Improvement Proposal “with full risk parameters included” for an on-chain vote. The proposal says these parameters “will be provided by Aave’s risk service providers”.
What this means
- Bitcoin could come to Aave directly. Holders might borrow against BTC without wrapping it.
- It is far from done. The plan still needs votes and risk settings before it goes live.
- The safety claims are Babylon’s. The “trustless” design has yet to be tested at scale.
Sources
- Aave Governance Forum, “[ARFC] Onboard Native BTC as Collateral to Aave V4 via Babylon Trustless Bitcoin Vaults”, Babylon Labs, 14 October 2026 (including replies). https://governance.aave.com/t/arfc-onboard-native-btc-as-collateral-to-aave-v4-via-babylon-trustless-bitcoin-vaults/25845
