Aave DAO Faces Vote on Native BTC Collateral as Babylon Labs Files Temp Check

BTC Holders Could Borrow connected Aave V4 Without Bridges if Babylon Labs Vote Passes

The proposal calls for deploying 2 caller Aave V4 Spokes connected Ethereum Mainnet. The first, the Babylon Core Lending Spoke, lets BTC holders get supported assets specified arsenic stablecoins and wrapped BTC against their autochthonal bitcoin collateral. The second, the BTC Vault Swap Spoke, handles post- liquidation colony by converting seized BTC collateral into WBTC for permissionless liquidators.

Aave posting astir the Temp Check connected X.

The mechanics works done Taproot scripts connected Bitcoin. A depositor locks BTC onchain wrong a Taproot unspent transaction output ( UTXO). That fastener creates a corresponding vault grounds connected Ethereum.

Because Aave V4 lone accepts ERC-20 tokens arsenic collateral, adapter contracts correspond each vault grounds one-to-one arsenic a transfer-restricted token called vaultBTC. The token tin lone determination betwixt the Aave V4 Hub, the Babylon Core Spoke, and the integration’s adapter contract. No different transfers are permitted.

Babylon Labs co-founded the task successful 2022 with Professor David Tse of Stanford and Dr. Fisher Yu. Since its bitcoin ( BTC) staking protocol launched successful August 2024, it has activated much than 100,000 BTC cumulatively and presently holds astir 51,000 BTC, valued adjacent $4 billion, successful progressive stakes.

Investors backing the task see A16z, Paradigm, and Polychain, with full backing exceeding $100 million. The underlying cryptography driving Trustless Bitcoin Vaults comes from BaBe, a peer-reviewed insubstantial co-developed by Babylon Labs and UC Berkeley, acceptable to look astatine CCS 2026, according to the Temp Check.

The probe reduces the outgo of SNARK impervious verification connected Bitcoin by astir 1,000 times compared to anterior approaches, making the fraud-proof situation model economically viable astatine scale. When a user’s BTC presumption is liquidated, a permissionless liquidator swaps the seized vault for WBTC astatine a tiny premium. A abstracted acceptable of permissioned arbitrageurs past acquisition those escrowed vaults, repay the WBTC debt, and redeem the underlying BTC natively connected Bitcoin.

The operation decouples liquidation timing from BTC redemption, allowing liquidators to settee instantly portion the BTC-side process runs connected its ain timeline. The connection besides targets WBTC utilization connected Aave. The level presently holds astir $5 cardinal successful WBTC supply, which Babylon Labs described arsenic underutilized connected the get side.

Routing liquidation settlements done WBTC is designed to make caller borrowing request for that asset. Aave DAO retains afloat power implicit each hazard parameters, proviso caps, get caps, and governance oversight crossed some Spokes. The Temperature Check focuses connected integration architecture. Risk parameters, oracle configuration, and afloat trust-assumption details are expected successful a follow-up Aave Request for Comment.

Security reviews are presently underway with Coinspect, Sherlock, Zellic, ABDK, and ZK Security crossed the protocol stack, arsenic elaborate by Babylon Labs. Formal verification is being conducted by Runtime Verification.

If the Temperature Check snapshot shows affirmative assemblage sentiment, the connection advances to the ARFC signifier for further hazard valuation and audit review. A palmy ARFC snapshot moves it to an onchain AIP ballot for last governance approval.

Babylon Labs stated it was not compensated by immoderate 3rd enactment to people the proposal.

Community Response Leans Positive

The integration, if approved, would springiness BTC holders a nonstop way to decentralized finance ( DeFi) borrowing without handing custody to a bridge, signer consortium, oregon threshold-signature group. Other projects gathering BTC-collateralized products could besides furniture connected apical of the primitive, extending the scope of autochthonal BTC into broader DeFi activity.

Early assemblage effect to the governance thread has been broadly supportive. Aave Labs Technical Service Provider Simo noted the integration aligns with Aave V4’s Hub-and-Spoke plan and that routing post- liquidation settlements done WBTC would make meaningful get request for an plus already heavy supplied connected the platform.

Aave laminitis Stani Kulechov backed the Temperature Check directly, citing enthusiasm for the V4 Spoke ecosystem gaining existent bitcoin collateral. Contributor Nicopei added an organization angle, pointing retired that keeping BTC autochthonal portion offering predictable borrowing costs addresses the 2 requirements astir commonly cited by organization borrowers who presently trust connected off-chain solutions.