CryptoSlate
Aave's preliminary governance vote approved a proposal to let holders borrow stablecoins against native Bitcoin, with $21 million in proposed initial Core Hub credit lines, according to Babylon Labs. LlamaRisk recommends a 78% collateral factor, while a final on-chain vote is still needed before the market can open.
The Nov. 9 ARFC vote drew 100% support, Babylon said. The plan would connect Babylon's Trustless Bitcoin Vaults to Aave V4: BTC would stay locked on Bitcoin, while an Ethereum-based accounting record would represent the collateral.
Why it matters
The design would allow Bitcoin holders to access stablecoin credit without supplying a freely transferable wrapped Bitcoin token. Proposed Core Hub lines comprise $8 million each for USDT and USDC, $1 million for GHO, and $2 million each for USDG and RLUSD.
A separate Babylon Hub would let liquidity providers choose exposure to native Bitcoin collateral under its own limits. Babylon targets mainnet for late 2026, subject to change and confirmation, with initial restrictions on participants and volume.
Market impact
Keeping BTC on Bitcoin does not eliminate liquidation risk. A liquidator would seize an entire vault even if less collateral were needed to clear the debt, with the borrower receiving discounted compensation for the remainder in WBTC.
WBTC also supports settlement: under the permissionless route, BTCVaultSwap would borrow it from an Aave Hub to pay liquidators immediately. Permissioned arbitrageurs would later repay the debt and redeem the underlying BTC over several days. The proposed Core Hub draw cap for that venue is 100 WBTC, separate from the stablecoin credit lines.
Frequently asked questions
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What approval does the Bitcoin lending market still need?
The proposal needs final on-chain approval through an Aave Improvement Proposal before the market can open on mainnet.
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How would Aave recognize Bitcoin held on its native network?
BTC would remain locked on Bitcoin, while an Ethereum-based accounting record would represent the collateral for Aave V4.
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Which stablecoins are included in the proposed Core Hub credit lines?
The proposal allocates $8 million each to USDT and USDC, $1 million to GHO, and $2 million each to USDG and RLUSD.
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What happens to a Bitcoin vault during liquidation?
Liquidation seizes the whole vault even if less collateral is needed to clear the debt. The borrower receives discounted compensation for the remainder in WBTC.
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When does Babylon target a mainnet rollout?
Babylon targets late 2026, subject to change and confirmation. The initial rollout would restrict participants and volume.
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