Bitcoin-focused developer Babylon Labs has formally submitted a governance proposal to the Aave decentralized finance community, aiming to allow users to borrow stablecoins against native Bitcoin without relying on traditional wrapped assets or custodial bridges.
Under the proposed technical mechanism, users would lock their native Bitcoin directly into dedicated vaults on the Bitcoin network while securing liquidity and borrowing against that underlying collateral on the Aave protocol. To bridge the architectural gap between the two distinct blockchain environments, a non-transferable token minted on the Ethereum network would serve as an onchain representation of the locked collateral. Meanwhile, the actual Bitcoin would remain securely stored on its native blockchain, entirely eliminating the need for it to be bridged or wrapped through third-party protocols.
This latest development arrives following an initial proposal submission on May 25, which subsequently cleared a preliminary community temperature check vote on June 10, according to public disclosures from Babylon Labs. The momentum behind the integration highlights a growing institutional and community appetite for bridging the deep liquidity of the world’s largest cryptocurrency with the sophisticated lending and borrowing markets available within decentralized finance.
As part of the economic framework outlined in the formal proposal, the Aave Decentralized Autonomous Organization (DAO) stands to benefit directly from the integration. Specifically, the DAO would receive the first $500,000 in qualifying annual revenue generated by the native Bitcoin lending infrastructure. This revenue-sharing model is designed to align the long-term strategic interests of both the Babylon ecosystem and the Aave protocol as they work to expand the utility of decentralized financial markets.
Currently, the decentralized lending landscape already supports various forms of loans backed by tokenized Bitcoin, primarily through popular synthetic assets such as Wrapped Bitcoin and Coinbase Wrapped Bitcoin. While these wrapped assets have successfully unlocked billions of dollars in decentralized finance liquidity over the years, they inherently rely on centralized or federated custodians to hold and secure the underlying physical Bitcoin. This reliance introduces external counterparty risks, such as potential custodial failures, regulatory pressures, or technical vulnerabilities associated with cross-chain bridge mechanisms. By contrast, the Babylon Labs approach seeks to minimize these trust assumptions by leveraging cryptographic vaults directly connected to the native Bitcoin network.
As of Thursday, the proposal is officially navigating the Aave Request for Comment stage. During this critical preliminary phase, the initiative is undergoing rigorous community feedback collection, technical evaluations, and comprehensive risk analyses from various DAO contributors and risk service providers. Because integrating a new type of collateral—especially one originating from a non-EVM blockchain like Bitcoin—involves complex security considerations, this phase is essential for identifying potential smart contract vulnerabilities, liquidation risks, and operational hurdles before any code is deployed to production environments.
Should the proposal successfully build a robust community consensus during the Request for Comment stage, it will advance to the next formal step in Aave’s decentralized governance lifecycle. This next milestone involves a three-day offchain Snapshot vote. According to Aave’s established governance rules and operational guidelines, this offchain poll requires a minimum participation threshold of at least 320,000 AAVE-equivalent votes cast in favor of the initiative before it can officially proceed to a formal onchain vote.
If the Snapshot vote clears this hurdle, the proposal must then undergo a final onchain vote. This ultimate governance action is subject to strict quorum requirements and minimum approval percentages to ensure that changes to the protocol core parameters reflect the collective will of token holders. Only after successfully navigating these multi-layered governance procedures could the integration of native Bitcoin collateral via Babylon trustless vaults be fully approved and implemented within the Aave ecosystem.
