Bitcoin-focused developer Babylon Labs has officially submitted a formal proposal to the Aave decentralized finance ecosystem, aiming to allow users to borrow stablecoins directly against native Bitcoin without relying on traditional bridging or wrapping mechanisms.
Under the architectural framework outlined in the proposal, users would lock their native Bitcoin within secure vaults directly on the Bitcoin network. They would then be able to borrow against this locked collateral on the Aave protocol. To bridge the multi-chain divide, a specialized non-transferable token minted on the Ethereum blockchain would represent the underlying collateral, ensuring that the actual Bitcoin remains securely stationed on its native blockchain network without ever needing to be wrapped or transferred across third-party bridge contracts.
The submission of this formal proposal on a Wednesday follows an initial temp-check proposal introduced on May 25. That preliminary governance step was met with a positive reception, culminating in a successful community vote that officially passed on June 10, according to public updates provided by Babylon Labs.
As part of the economic terms outlined in the proposal, the Aave decentralized autonomous organization would stand to capture a significant financial incentive, receiving the first $500,000 in qualifying annual revenue generated by the integration of the native Bitcoin vaults. This revenue-sharing model is designed to align the long-term interests of both the Babylon ecosystem and the Aave DAO as they explore cross-chain collateral integration.
Currently, the Aave lending protocol already supports borrowing against tokenized forms of Bitcoin through established assets such as Wrapped Bitcoin (WBTC) and Coinbase Wrapped Bitcoin (cbBTC). However, these existing solutions inherently rely on centralized or federated custodians to hold and manage the underlying physical Bitcoin. This architectural dependency introduces counterparty risks, such as potential custodial insolvency, regulatory crackdowns on custodians, or technological vulnerabilities associated with the custody providers. Babylon Labs’ proposed integration seeks to bypass these trust assumptions entirely by utilizing cryptographic primitives and native network vaults.
As of Thursday, the proposal sits firmly at the Aave Request for Comment stage, a critical phase in decentralized governance where community members, risk managers, and core contributors provide critical feedback, debate the economic implications, and conduct thorough risk analyses.
Should the proposal successfully navigate this feedback stage and achieve a definitive community consensus, it will advance to the next procedural milestone: a formal three-day offchain Snapshot vote. According to Aave’s established governance rules and documentation, this offchain phase requires a minimum threshold of at least 320,000 AAVE-equivalent votes cast in favor of the measure before it can officially graduate to a formal onchain vote.
Once cleared through the offchain Snapshot stage, the proposal must then be submitted for an onchain vote, which is subject to strict quorum requirements and minimum approval percentages to ensure that governance participants strongly back the integration before any code changes or protocol deployments occur.
