By Ali Ikhwan 
Bitcoin-focused development firm Babylon Labs has advanced its push to integrate the world’s largest cryptocurrency into decentralized finance by submitting a formal proposal to allow users to borrow stablecoins on Aave using native Bitcoin as collateral.
The initiative seeks to reshape how Bitcoin holders leverage their assets within the decentralized finance ecosystem by eliminating the need for traditional custodial bridging mechanisms. Under the technical framework outlined in the submission, users would lock their native Bitcoin directly into specialized vaults on the Bitcoin network. Rather than transferring or wrapping the asset, the system issues a non-transferable token on the Ethereum blockchain to represent the underlying collateral, allowing borrowers to access liquidity and secure stablecoin loans on Aave without exposing themselves to the standard vulnerabilities associated with traditional cross-chain bridges.
This latest development follows a progression of governance milestones that began earlier this year. Babylon Labs initially introduced the concept to the decentralized autonomous organization with a temp check proposal on May 25. That preliminary phase successfully gauged community interest and culminated in a favorable community vote on June 10, according to information shared by Babylon Labs during its quarterly founders call.
As part of the economic terms outlined in the formal proposal, the Aave DAO stands to capture significant financial upside. Specifically, the DAO would receive the first $500,000 in qualifying annual revenue generated by the integration, aligning the protocol’s growth directly with the success of the native Bitcoin vault system.
The integration addresses a long-standing structural limitation within decentralized lending markets. Currently, Aave supports borrowing against tokenized versions of Bitcoin through assets such as Wrapped Bitcoin and Coinbase Wrapped Bitcoin. While these wrapped assets have successfully brought billions of dollars in Bitcoin liquidity into decentralized finance protocols, they inherently rely on centralized custodians to hold and secure the underlying physical Bitcoin. This reliance introduces external counterparty risks, regulatory vulnerabilities, and potential points of failure that trustless cryptographic architectures aim to eliminate. By utilizing vaults on the native Bitcoin network, the Babylon Labs proposal offers a decentralized alternative designed to preserve the sovereign nature of Bitcoin while expanding its utility in multi-chain borrowing environments.
As of Thursday, the proposal remains actively positioned at the Aave Request for Comment stage. During this phase, the initiative is undergoing rigorous community feedback, technical scrutiny, and comprehensive risk analysis by decentralized finance risk management entities to evaluate the safety and viability of the integration before it can advance further down the governance pipeline.
Should the proposal successfully navigate the community consensus period, it will progress to a formal three-day offchain Snapshot vote. According to the governance rules established by the Aave protocol, this preliminary voting stage requires a minimum threshold of at least 320,000 AAVE-equivalent votes cast in favor of the measure. Meeting this threshold is a mandatory prerequisite before the initiative can officially transition to a formal onchain vote.
The subsequent onchain vote must then strictly satisfy all protocol-defined quorum requirements and approval percentages to officially enact the governance changes. If fully approved, the integration will mark a major milestone for decentralized finance, bridging the gap between Bitcoin’s native security model and the advanced credit markets available on decentralized liquidity protocols like Aave.
Jia Lissa 
Layla Zulfa