By Tom Whitfield

Babylon Labs has moved its proposal to let users borrow stablecoins on Aave V4 against native Bitcoin (BTC) into the Aave Request for Comment (ARFC) stage, the developer confirmed on Wednesday. The design keeps collateral on the Bitcoin network and avoids wrapped tokens entirely.

Under the proposal, users would lock BTC in vaults on the Bitcoin blockchain and borrow against it on Aave, which runs on Ethereum. A non-transferable token on Ethereum would represent the locked collateral. The BTC itself would never be bridged, wrapped or moved off its native chain.

What does the plan change for Aave?

Aave already accepts tokenized Bitcoin as collateral through Wrapped Bitcoin (WBTC) and Coinbase Wrapped Bitcoin (cbBTC). Both instruments depend on custodians holding the underlying BTC, which introduces counterparty risk that the Babylon design removes by construction.

The economics are fixed in the proposal text. Aave DAO would receive the first $500,000 in qualifying annual revenue generated by the integration. The figure anchors the DAO's upside before any revenue-sharing kicks in elsewhere.

The Wednesday submission follows an initial proposal on May 25 and a preliminary community vote that passed on June 10, according to Babylon Labs. The ARFC stage is where delegates submit feedback and risk providers analyze parameters before any binding vote.

What stands between the proposal and launch?

The governance path ahead has three gates. First, the ARFC discussion must reach community consensus. Second, a three-day off-chain Snapshot vote requires at least 320,000 AAVE-equivalent votes in favor, per Aave's governance rules. Third, a formal on-chain vote must meet quorum and approval thresholds before the integration goes live.

No timeline for the Snapshot vote has been set. As of Thursday, the proposal sat in the ARFC stage, where it faces community feedback and risk analysis from Aave's service providers.

The proposal lands as Aave rolls out V4 across chains, having launched the version on Avalanche to lay groundwork for tokenized credit markets. A native-Bitcoin collateral market on Ethereum would extend that architecture to BTC holders who currently must accept custodian exposure to borrow against their holdings.

Whether the integration proceeds depends on the ARFC review and the 320,000-vote Snapshot threshold in the coming weeks.