By Ali Ikhwan 
Bitcoin-focused developer Babylon Labs has officially submitted a formal proposal to allow cryptocurrency users to borrow stablecoins on the Aave decentralized finance protocol using native Bitcoin as collateral, aiming to bypass the traditional reliance on wrapped or bridged assets.
Under the mechanics of the proposed integration, users would securely lock their Bitcoin directly within specialized vaults operating on the native Bitcoin blockchain. They would then be able to borrow stablecoins against that locked collateral on Aave. To bridge the gap between separate blockchain architectures, a non-transferable cryptographic token minted on the Ethereum network would serve as a representation of the underlying collateral, while the actual Bitcoin remains securely situated on its native blockchain without ever needing to be bridged, wrapped, or transferred to an intermediary network.
The detailed Wednesday proposal follows an initial submission originally introduced to the community on May 25. That initial step was followed by a preliminary community governance vote that successfully passed on June 10, according to disclosures provided by Babylon Labs during a quarterly founders call.
As part of the economic framework outlined in the proposal, the Aave Decentralized Autonomous Organization would stand to benefit substantially, receiving the first $500,000 in qualifying annual revenue generated directly by the integration. This financial incentive is designed to align the interests of the Aave ecosystem with the deployment of Babylon’s trustless architecture.
Currently, the Aave protocol already supports various forms of loans against tokenized Bitcoin through assets such as Wrapped Bitcoin and Coinbase Wrapped Bitcoin. However, these existing wrapped tokens inherently rely on centralized or federated custodians to hold the underlying physical Bitcoin in reserve, a design choice that introduces distinct counterparty risks, potential points of failure, and trust assumptions that many decentralized finance purists seek to avoid.
As of Thursday, the newly submitted proposal remains positioned at the Aave Request for Comment stage, where it is undergoing rigorous community feedback, architectural review, and comprehensive risk analysis by decentralized finance risk management experts.
If the proposal successfully achieves the necessary community consensus during this initial feedback period, it will be eligible to proceed to a formal three-day offchain Snapshot vote. According to Aave’s established governance rules and documentation, this offchain phase requires a minimum threshold of at least 320,000 AAVE-equivalent votes cast in favor before the initiative can advance to the final stage of a formal onchain vote.
Following the successful completion of the offchain phase, the subsequent onchain vote must still rigorously meet all prescribed quorum and absolute approval requirements mandated by the Aave protocol’s governance smart contracts to be fully enacted and deployed.
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