Babylon Labs has moved its proposal to bring native Bitcoin collateral to Aave V4 into another governance stage, opening the way for BTC holders to borrow stablecoins without transferring their Bitcoin to another blockchain. The plan still requires community approval, risk assessment and security reviews before it could launch.
How the proposed system would work
Under the proposal, users would deposit Bitcoin into vaults on the Bitcoin network and use that collateral to borrow stablecoins through Aave. An Ethereum-based, non-transferable token would represent the locked BTC within the lending system. The Bitcoin itself would remain on its native network rather than being bridged to Ethereum or converted into a wrapped asset.
The initiative comes from Babylon Labs, a developer focused on Bitcoin. Its latest submission follows an initial proposal made on May 25 and a preliminary community vote that passed on June 10, according to Cointelegraph.
The arrangement is designed to connect Bitcoin ownership with decentralized finance lending while avoiding the need to move BTC into a wrapped form. Aave is a decentralized lending protocol in which users can supply assets and borrow against collateral, subject to the system’s governance and risk parameters.
Governance process is not complete
The proposal is currently at Aave’s Request for Comment, or ARFC, stage. At this point, the community can provide feedback and conduct risk analysis before the plan advances to a formal vote.
If the proposal gains sufficient community support, it could move to a three-day off-chain Snapshot vote. Aave’s governance rules require at least 320,000 AAVE-equivalent votes in favor for the proposal to proceed to an on-chain vote. That final vote would still need to satisfy the applicable quorum and approval requirements.
The proposal also states that Aave DAO would receive the first $500,000 in qualifying annual revenue generated by the integration. The source material does not specify when the service could launch or provide a timetable for the remaining reviews and votes.
Difference from wrapped Bitcoin lending
Aave already allows borrowing against tokenized Bitcoin through assets including Wrapped Bitcoin, or WBTC, and Coinbase Wrapped Bitcoin, or cbBTC. Wrapped tokens generally represent Bitcoin held by a custodian, meaning users rely on that custodian to safeguard the underlying asset. This introduces counterparty risk.
Babylon’s proposal instead seeks to keep the BTC on Bitcoin’s own blockchain while using a separate, non-transferable representation on Ethereum for the lending process. Whether that structure can meet Aave’s security and risk requirements will be determined through the remaining governance and review stages.
Market picture
Moneyiar market data recorded at 21:18 on October 15, 2026, showed Bitcoin at $82,080.481254066, up 0.45% over 24 hours and 0.45% over seven days. AAVE traded at $157.2190528384, gaining 2.04% in 24 hours but falling 5.67% over seven days.
Babylon’s BABY token was priced at $0.0126640522, up 8.31% over 24 hours and down 1.63% over seven days. These figures are Moneyiar data at that time and reflect market prices, not the outcome of the lending proposal or its governance process.
