Babylon proposes integrating native Bitcoin collateral on Aave V4 without requiring cross-chain bridges and custody.

CoinFeed reported on May 26th that Babylon Labs has initiated a temperature check proposal in the Aave community, suggesting integrating native Bitcoin as collateral on Aave V4 via the Babylon Trustless Bitcoin Vaults protocol. This solution requires no encapsulation, cross-chain bridges, or custodians. Users lock their Bitcoin in Taproot UTXOs, and redemption is controlled by on-chain rules (such as loan repayments), settling directly to the Bitcoin UTXO. The proposal deploys two Aave V4 Spokes: Babylon Core Lending Spoke and BTC Vault Swap Spoke. Collateral exists in the form of vaultBTC, a transfer-restricted ERC-20 token, limited to transfers between a fixed whitelist of addresses.