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Published Oct 15, 2026
Bitcoin-focused developer Babylon Labs has advanced its ambitious proposal to allow users to borrow stablecoins on the Aave lending protocol using native Bitcoin as collateral, marking a significant milestone as the initiative enters a fresh governance stage within the decentralized finance ecosystem.
Under the technical framework of the proposal, users would securely lock their Bitcoin assets within specialized vaults operating on the Bitcoin network and subsequently borrow against that collateral on the Aave protocol. To bridge the ecosystem gap without compromising decentralization, a non-transferable token minted on the Ethereum blockchain would serve as the onchain representation of the locked collateral. Crucially, the underlying Bitcoin would remain securely on its native blockchain network at all times, entirely eliminating the need for traditional bridging mechanisms or wrapped token intermediaries.
This latest development arrives following an initial formal submission introduced on May 25, which was subsequently followed by a preliminary community temperature check vote that successfully passed on June 10, according to public updates and statements from Babylon Labs. The continuous progression through the decentralized autonomous organization’s pipeline highlights growing momentum within the community for trustless cross-chain integrations.
As part of the economic terms outlined in the formal proposal, the Aave Decentralized Autonomous Organization would stand to receive the first $500,000 in qualifying annual revenue generated directly by the integration, aligning the financial incentives of both protocols and providing a tangible revenue stream for the Aave treasury.
Currently, the Aave lending market already supports loans against tokenized forms of Bitcoin through prominent assets such as Wrapped Bitcoin and Coinbase Wrapped Bitcoin. However, these existing wrapped tokens inherently rely on centralized or federated custodians to hold and manage the underlying physical Bitcoin, a structural design that introduces distinct counterparty risks, potential points of failure, and regulatory considerations for large-scale institutional and retail participants alike. By utilizing trustless vaults, the proposed integration aims to mitigate these traditional custody vulnerabilities.
As of Thursday, the proposal remains actively situated at the Aave Request for Comment governance stage, a critical period during which the initiative undergoes rigorous community feedback collection and comprehensive risk analysis from specialized risk service providers.
Should the proposal successfully achieve broad community consensus during this investigative phase, it will be permitted to proceed to a formal three-day offchain Snapshot vote. According to the established governance rules governing the Aave ecosystem, this offchain phase requires a minimum threshold of at least 320,000 AAVE-equivalent votes cast in favor of the initiative before it can officially advance to the final onchain voting stage.
Following the successful completion of the Snapshot phase, the subsequent onchain vote must rigorously meet all pre-determined quorum and absolute approval requirements mandated by the protocol’s governance charter to achieve final implementation status.
