The move advances the discussion-stage plan published Oct. 14. 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. The $BTC Vault Swap Spoke would handle liquidation settlement.
That 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. Approved arbitrageurs would later buy those vaults, repay the WBTC debt and redeem the bitcoin.
Risk Settings Take Shape
LlamaRisk, Aave’s risk service provider, published recommendations on Oct. 23, including a 300 $BTC collateral cap and a 78% collateral factor. It also recommended Chainlink’s $BTC/USD SVR feed to price the native collateral. These are proposed settings, not an activated market configuration.
Proposed Initial Native-$BTC Risk Settings
Source: LlamaRisk recommendations published Oct. 23, 2026. Subject to governance approval.
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.