Aave DAO Faces Vote on Native BTC Collateral as Babylon Labs Information Temp Verify

BTC Holders Might Borrow on Aave V4 With out Bridges if Babylon Labs Vote Passes

The proposal requires deploying two new Aave V4 Spokes on Ethereum Mainnet. The primary, the Babylon Core Lending Spoke, lets BTC holders borrow supported belongings comparable to stablecoins and wrapped BTC in opposition to their native bitcoin collateral. The second, the BTC Vault Swap Spoke, handles post- liquidation settlement by changing seized BTC collateral into WBTC for permissionless liquidators.

The mechanism works by Taproot scripts on Bitcoin. A depositor locks BTC onchain inside a Taproot unspent transaction output ( UTXO). That lock creates a corresponding vault report on Ethereum.

As a result of Aave V4 solely accepts ERC-20 tokens as collateral, adapter contracts symbolize every vault report one-to-one as a transfer-restricted token known as vaultBTC. The token can solely transfer between the Aave V4 Hub, the Babylon Core Spoke, and the mixing’s adapter contract. No different transfers are permitted.

Babylon Labs co-founded the challenge in 2022 with Professor David Tse of Stanford and Dr. Fisher Yu. Since its bitcoin ( BTC) staking protocol launched in August 2024, it has activated greater than 100,000 BTC cumulatively and presently holds roughly 51,000 BTC, valued close to $4 billion, in lively stakes.

Traders backing the challenge embrace A16z, Paradigm, and Polychain, with complete funding exceeding $100 million. The underlying cryptography driving Trustless Bitcoin Vaults comes from BaBe, a peer-reviewed paper co-developed by Babylon Labs and UC Berkeley, set to look at CCS 2026, in accordance with the Temp Verify.

The analysis reduces the price of SNARK proof verification on Bitcoin by roughly 1,000 occasions in comparison with prior approaches, making the fraud-proof problem window economically viable at scale. When a person’s BTC place is liquidated, a permissionless liquidator swaps the seized vault for WBTC at a small premium. A separate set of permissioned arbitrageurs then buy these escrowed vaults, repay the WBTC debt, and redeem the underlying BTC natively on Bitcoin.

The construction decouples liquidation timing from BTC redemption, permitting liquidators to settle instantly whereas the BTC-side course of runs by itself timeline. The proposal additionally targets WBTC utilization on Aave. The platform presently holds roughly $5 billion in WBTC provide, which Babylon Labs described as underutilized on the borrow aspect.

Routing liquidation settlements by WBTC is designed to generate new borrowing demand for that asset. Aave DAO retains full management over all danger parameters, provide caps, borrow caps, and governance oversight throughout each Spokes. The Temperature Verify focuses on integration structure. Threat parameters, oracle configuration, and full trust-assumption particulars are anticipated in a follow-up Aave Request for Remark.

Safety critiques are presently underway with Coinspect, Sherlock, Zellic, ABDK, and ZK Safety throughout the protocol stack, as detailed by Babylon Labs. Formal verification is being performed by Runtime Verification.

If the Temperature Verify snapshot reveals optimistic neighborhood sentiment, the proposal advances to the ARFC stage for additional danger analysis and audit assessment. A profitable ARFC snapshot strikes it to an onchain AIP vote for remaining governance approval.

Babylon Labs said it was not compensated by any third celebration to publish the proposal.

Group Response Leans Optimistic

The mixing, if accredited, would give BTC holders a direct path to decentralized finance ( DeFi) borrowing with out handing custody to a bridge, signer consortium, or threshold-signature group. Different tasks constructing BTC-collateralized merchandise might additionally layer on prime of the primitive, extending the attain of native BTC into broader DeFi exercise.

Early neighborhood response to the governance thread has been broadly supportive. Aave Labs Technical Service Supplier Simo famous the mixing aligns with Aave V4’s Hub-and-Spoke design and that routing post- liquidation settlements by WBTC would generate significant borrow demand for an asset already closely equipped on the platform.

Aave founder Stani Kulechov backed the Temperature Verify instantly, citing enthusiasm for the V4 Spoke ecosystem gaining actual bitcoin collateral. Contributor Nicopei added an institutional angle, stating that preserving BTC native whereas providing predictable borrowing prices addresses the 2 necessities mostly cited by institutional debtors who presently depend on off-chain options.