Aave Explores Native BTC Borrowing via Babylon Vaults

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• Babylon submits a temp check proposal looking to integrate its Trustless Bitcoin Vaults into Aave V4.

• This will bring native Bitcoin collateral into Aave for the first time.

Babylon Labs has submitted a temp check proposal to Aave DAO, looking to integrate its Trustless Bitcoin Vaults into Aave V4. Under the proposal, Babylon would launch two new Aave V4 Spokes that allow the direct use of native Bitcoin as collateral on Aave’s vast DeFi network.

The first focus will be to enable users to borrow against native BTC holdings, known as the Babylon Core Lending Spoke. This brings the concept of Bitcoin lending without the need for wrapped assets.

This spoke would allow users to deposit native BTC as collateral through a vault-based representation system. Users could then take out loans in assets like stablecoins or other cryptos on Aave. The system would also support standard lending actions, including collateral adjustments, borrowing, repayment, and partial liquidations.

The other, a custom BTC Vault Swap Spoke built to swap seized BTC collateral to WBTC, would manage post-liquidation settlement processes. Since Bitcoin settlement on-chain is slower and follows different rules than Ethereum-based DeFi, this spoke is designed to handle conversions of seized BTC positions into wrapped Bitcoin (WBTC) so liquidators can be settled immediately. Later, arbitrage participants can redeem the underlying BTC on the Bitcoin network.

Building on its success in Bitcoin staking, the Babylon proposal suggests massive demand for trustless ways to put BTC to work.

Aave Is Uniquely Positioned for Bitcoin DeFi

Speaking on its choice to integrate with Aave, Babylon points to Aave’s V4’s Hub-and-Spoke architecture, which provides an isolated environment in which integrations can deploy both standard and custom Spokes without affecting other assets on the Hub.

If approved through Aave’s governance process, the integration could become one of the first large-scale implementations of native Bitcoin collateral.

Babylon notes that the proposal is now awaiting community feedback. If well received by the community, it will proceed to the ARFC stage for further discussion, risk parameter evaluation, audit review, and finalization. Finally, it will be submitted as an AIP for voting and on-chain governance approval. The vaultBTC listing will be added to an existing V4 Hub or a new Hub deployed for this integration.

The proposal is likely to pass as it has already received the support of Stani Kulechov, the founder of Aave. He says that under this proposal, the $4 billion in BTC assets Babylon currently holds will be used as collateral on Aave.

The first novel Spoke implementation proposal for Aave V4 by the Babylon team introduces trustless BTC collateral on Aave V4 without Bitcoin ever leaving the Bitcoin network.

Babylon already has over $4B in BTC staked, which is expected to be used as collateral on Aave. https://t.co/JPVQt2lfmd

— Stani (@StaniKulechov) May 25, 2026

As of writing, Babylon’s crypto token trades at $0.01587 after rising** 3%** over the past week. Meanwhile, AAVE trades at $85.33 after falling **4% **over the past week.