Browse
Reference
Directory
Company
Help & Legal
Follow
Subscribe
Quick Take
Aave's proposal to let holders borrow stablecoins against native Bitcoin cleared its preliminary ARFC governance vote on Nov. 9, according to Babylon Labs.
The borrowing market still needs final approval before holders can use it on mainnet. Babylon reported 100% support for the plan to connect its Trustless Bitcoin Vaults to Aave V4, and the next step is an Aave Improvement Proposal (AIP) for final on-chain approval.
A vote advances the plan. Borrowing still awaits approval.
Babylon reports ARFC passage on Nov. 9. Final AIP approval and a restricted mainnet rollout remain ahead.
Explore the proposed market
BTC stays locked on Bitcoin; Aave recognizes collateral on Ethereum and lends supported stablecoins.
The permissionless route uses WBTC now and native BTC redemption later. This remains a proposed design with liquidation risk.
Native BTC would back stablecoin loans, while WBTC still has a separate liquidation-settlement role.
Vote result attributed to Babylon. Late-2026 target remains conditional. Credit limits are proposed capacity. Diagrams omit operator and governance detail; liquidation risk and WBTC dependencies remain.
Sources
Supporting facts
Method
Reported governance stages are arranged in sequence, without duration or probability scaling. Selectable diagrams explain two different proposed mechanisms; no forecast or live-liquidity calculation is shown.
Scope
Under the proposed change, BTC would remain locked on Bitcoin, while an Ethereum-based accounting record would let Aave recognize it. Borrowers would not need to supply a freely transferable wrapped Bitcoin token.
The governance proposal sets out initial stablecoin credit lines from Aave's Core Hub liquidity pool of $8 million each for USDT and USDC, $1 million for GHO, and $2 million each for USDG and RLUSD.
A separate liquidity pool, the Babylon Hub, would let liquidity providers choose exposure to native Bitcoin collateral, with its own limits.
Risk adviser LlamaRisk recommends a 78% collateral factor for native BTC. The collateral record itself would remain non-borrowable, representing BTC securing a position.
Babylon targets mainnet for late 2026, subject to change and confirmation. It says deployment will start with restrictions on participants and volume, with a schedule and staged rollout plan still to follow. Its current FAQ directs users to a public testnet and gives a fourth-quarter mainnet target.
Keeping the underlying BTC on Bitcoin does not remove liquidation or settlement risk. The Ethereum collateral record would be a transfer-restricted ERC-20 accounting unit, and a borrower could still lose vault collateral through liquidation.
Some Aave loans sit near liquidation with collateral that can take hours to cash out
Wrapped Bitcoin remains as part of the structure
The design also retains a role for Wrapped Bitcoin (WBTC). Under the permissionless liquidation route, BTCVaultSwap would borrow WBTC from an Aave Hub to settle immediately with liquidators.
Permissioned arbitrageurs would later repay that debt and redeem the underlying BTC over several days, as LlamaRisk's assessment describes.
The proposed Core Hub draw cap for that settlement venue is 100 WBTC, separate from the stablecoin lending lines. Permissioned actors can also liquidate and redeem vaults directly without drawing Hub liquidity, although fees or borrower compensation can still require WBTC.
Liquidation seizes whole vaults, even when clearing the debt requires less than a vault's full BTC value, and the borrower receives discounted compensation for that remainder in wrapped BTC.
Prospective borrowers still need final AIP approval and a confirmed rollout schedule before this market moves from governance backing to mainnet access.
Mentioned in this article
Strategy’s STRC hit $100, but common stock still funded last week’s Bitcoin purchases
Cookie Consent
We use cookies to improve your experience on our site. By using our site, you consent to cookies.
Cookie Preferences
Manage your cookie preferences below:
Essential cookies enable basic functions and are necessary for the proper function of the website.
CloudFlare provides web performance and security solutions, enhancing site speed and protecting against threats.
Service URL: developers.cloudflare.com (opens in a new window)
Google Analytics is a powerful tool that tracks and analyzes website traffic for informed marketing decisions.
Service URL: policies.google.com (opens in a new window)
Statistics cookies collect information anonymously. This information helps us understand how visitors use our website.
Clarity is a web analytics service that tracks and reports website traffic.
Service URL: clarity.microsoft.com (opens in a new window)
You can find more information in our Privacy Policy and .
Loading image…
This image could not be loaded.
The Catalyst
