Babylon Labs has submitted a proposal to the Aave decentralized autonomous organization that would allow users to borrow stablecoins against native Bitcoin collateral. The proposal differs from existing tokenized Bitcoin solutions by keeping BTC on its native blockchain.
Under the proposal structure, users would lock Bitcoin in vaults on the Bitcoin network and borrow against that collateral on Aave. A non-transferable token on Ethereum would represent the locked collateral while the actual Bitcoin remains unwrapped and unbridged on its original network.
The proposal follows an initial submission on May 25 and a preliminary community vote that passed on June 10. Aave DAO would receive the first $500,000 in qualifying annual revenue generated by the integration.
Governance Process Ahead
As of Thursday, the proposal remained at the Aave Request for Comment stage, where it undergoes community feedback and risk analysis. If community consensus forms, the proposal can advance to a three-day offchain Snapshot vote, which requires at least 320,000 AAVE-equivalent votes in favor to proceed to a formal onchain vote. The onchain vote must meet quorum and approval requirements under Aave's governance rules.
Distinction From Existing Solutions
Aave currently supports loans against tokenized Bitcoin through assets such as Wrapped Bitcoin and Coinbase Wrapped Bitcoin. These wrapped token solutions rely on custodians to hold the underlying Bitcoin, introducing counterparty risks that the Babylon proposal aims to avoid through its native collateral model.
