Babylon has submitted a governance proposal, dated Oct. 18, 2026, to enable native Bitcoin as collateral on Aave V4. The plan would allow Bitcoin holders to borrow stablecoins against their BTC without selling or wrapping it, preserving long-term exposure while accessing liquidity.
The proposal specifically contrasts native Bitcoin with wrapped versions such as WBTC, noting that wrapped tokens add custodian and bridge trust assumptions. A native BTC collateral model, if technically realized, could reduce counterparty risk, though custody, cross-chain architecture, and oracle design still need governance-approved details.
Potential benefits include capital efficiency and avoidance of taxable disposal, but risks remain: Bitcoin volatility can trigger liquidations, and any mechanism linking Bitcoin’s UTXO ledger to Ethereum smart contracts introduces bridge or custody risk. The proposal remains in early stages and must pass Aave’s temperature check, snapshot vote, and on-chain execution before any implementation.
