Aave DAO has scheduled a Snapshot vote on adding native bitcoin as collateral to V4 through Babylon's Trustless Bitcoin Vaults. A positive result would not activate the market, because a separate onchain governance approval would still be required.
Aave DAO has posted a Snapshot proposal to add native bitcoin as collateral to V4 through Babylon's Trustless Bitcoin Vaults. Voting is scheduled to begin Nov. 6. The integration would let users borrow stablecoins while their BTC stays locked on Bitcoin.
The vote runs from Nov. 6 at 9:03 a.m. ET to Nov. 9 at 9:03 a.m. ET, and voters can choose For, Against or Abstain. Aave's governance rules specify a 320,000 AAVE voting-power threshold for the Snapshot stage. The vote makes a binding governance commitment but does not itself execute the market's activation.
How the vault design works
Under Babylon's design, BTC would remain in vaults on Bitcoin rather than be deposited with a custodian to issue a tradable wrapper. Aave would recognize the collateral through a transfer-restricted ERC-20 token used only for internal accounting.
The integration would add two modules, or Spokes. The Babylon Spoke would accept native BTC as its only collateral and draw loan assets from an Aave V4 liquidity Hub, while the BTC Vault Swap Spoke would handle liquidation settlement.
The second module addresses a timing mismatch. Native BTC redemption takes several days and is restricted to participants named in advance in each vault. Other liquidators could instead receive WBTC immediately, borrowed from the Hub against seized vaults, and approved arbitrageurs would later buy those vaults, repay the WBTC debt and redeem the bitcoin.
LlamaRisk proposes a 300 BTC cap
LlamaRisk, Aave's risk service provider, recommended a 300 BTC collateral cap and a 78% collateral factor on Oct. 23. It also recommended Chainlink's BTC/USD SVR feed to price the native collateral. These are proposed settings, not an activated market configuration.
Access would initially be limited. LlamaRisk's assessment says deposits would start with an approved group of institutional and partner users, with public access planned later.
Babylon's stated next step after a positive Snapshot result is an Aave Improvement Proposal containing full risk parameters for onchain governance approval. That separate approval and execution would still be required before the market could activate.
Source: The Defiant
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