Bitcoin-focused developer Babylon Labs has submitted a proposal to let users borrow stablecoins on Aave against native Bitcoin (BTC).
Under the hood, users would lock their BTC in vaults on the Bitcoin network and borrow against it on Aave. A non-transferable token on Ethereum would represent the collateral, while the BTC itself would remain on its native blockchain without being bridged or wrapped.
The Wednesday proposal follows an initial submission on May 25 and a preliminary community vote that passed on June 10, according to Babylon Labs.
Under the proposal, Aave DAO would receive the first $500,000 in qualifying annual revenue generated by the integration.
Aave already supports loans against tokenized Bitcoin through tokens such as Wrapped Bitcoin (WBTC) and Coinbase Wrapped Bitcoin (cbBTC). Wrapped tokens rely on custodians to hold the underlying Bitcoin, introducing counterparty risks.
As of Thursday, the proposal remains at the Aave Request for Comment (ARFC) stage, where it faces community feedback and risk analysis.
If community consensus is reached, it can proceed to a three-day offchain Snapshot vote, which requires at least 320,000 AAVE-equivalent votes in favor before advancing to a formal onchain vote, according to Aave’s governance rules.
The onchain vote must meet quorum and approval requirements.
Related: Aave launches V4 on Avalanche, laying groundwork for tokenized credit markets
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