Under the architectural framework detailed in the submission, users would securely lock their Bitcoin holdings in specialized vaults directly on the Bitcoin network while gaining the ability to borrow against those assets on Aave. To maintain the connection across different blockchain networks, a non-transferable token minted on the Ethereum blockchain would represent the underlying collateral. Crucially, the actual Bitcoin would remain securely stored on its native blockchain network without ever requiring traditional cross-chain bridging or the creation of wrapped synthetic representations.
This latest proposal, submitted on a Wednesday, directly follows an initial temp-check submission introduced on May 25. That preliminary phase successfully garnered community attention and culminated in a supportive preliminary community vote that officially passed on June 10, according to public updates and statements provided by Babylon Labs during their quarterly founders call.
As part of the economic terms outlined in the formal proposal, the Aave decentralized autonomous organization would receive the first $500,000 in qualifying annual revenue generated directly by the integration. This revenue-sharing model is designed to incentivize the Aave ecosystem to adopt the native trustless vault technology and align the long-term strategic interests of both development teams.
Currently, the Aave lending protocol already supports loans against tokenized forms of Bitcoin through popular assets such as Wrapped Bitcoin and Coinbase Wrapped Bitcoin. However, these existing wrapped tokens inherently rely on centralized or federated custodians to hold and secure the actual underlying Bitcoin. This reliance introduces third-party counterparty risks, potential regulatory vulnerabilities, and single points of failure that many purists and institutional market participants seek to avoid in decentralized finance environments. By utilizing Babylon’s trustless vault infrastructure, the integration aims to eliminate these traditional custody concerns while expanding Aave’s total addressable market to include billions of dollars in dormant Bitcoin capital.
As of Thursday, the proposal remains actively situated at the Aave Request for Comment stage. During this critical phase, the protocol undergoes rigorous community feedback collection, architectural review, and comprehensive risk analysis by specialized risk management entities associated with the Aave ecosystem.
Should the proposal successfully achieve broader community consensus during the ARFC stage, it will be permitted to proceed to a subsequent three-day offchain Snapshot vote. According to Aave’s established governance rules and documentation, this preliminary offchain voting phase requires a minimum threshold of at least 320,000 AAVE-equivalent votes cast in favor before the initiative can advance to a formal, binding onchain vote.
Once past the Snapshot milestone, the proposal must then navigate a formal onchain vote, which is subject to strict governance quorum requirements and predetermined approval thresholds to ensure broad stakeholder agreement before any code implementation or protocol parameter updates can take place.
This governance process mirrors other major expansions within the Aave ecosystem, running parallel to broader architectural upgrades such as the recent deployment of Aave V4 on Avalanche, which lays important structural groundwork for advanced tokenized asset lending markets across the wider multi-chain landscape.
As stakeholders review the technical specifications and risk parameters, the debate highlights the ongoing evolution of decentralized finance as it seeks to safely bridge disparate blockchain ecosystems and unlock deeper liquidity for the world’s largest digital asset without compromising on the core principles of decentralization and self-custody.
