BREAKING: Babylon Wants Bitcoin Holders to Borrow on Aave Without Wrapping Their BTC — Native BTC Lending Plan Moves Forward

 Babylon Labs has moved a new Bitcoin lending plan forward on Aave V4. The proposal, filed this week at the Aave Request for Comment stage, would let holders lock real Bitcoin in vaults on the Bitcoin network itself and borrow stablecoins through Aave — without first wrapping or bridging their BTC to another chain.

That difference matters to traders. Today, most Bitcoin-backed loans on Aave use wrapped tokens such as WBTC or cbBTC, which depend on a custodian holding the real coins. Under Babylon's design, the BTC stays on its own network, while a non-transferable token on Ethereum simply represents the locked position for the lending market.

The plan includes two new parts inside Aave V4, one for borrowing against native Bitcoin and one to handle liquidations if a loan turns risky. If the community backs it after risk review, the next steps would be an offchain Snapshot vote needing at least 320,000 AAVE-equivalent votes in favour, followed by a formal onchain vote. Aave's DAO would keep control of limits and risk settings, and would receive the first $500,000 in qualifying yearly revenue from the integration.

The idea already has early momentum. A first temperature check passed in June, and HashKey Cloud plans to connect its clients to the vaults. Supporters say native Bitcoin could become a much bigger source of collateral in DeFi if holders no longer have to give up custody to borrow against it.

For traders, this is not live yet — it is a proposal, not a launch. But if Aave approves it, Bitcoin holders would gain a new way to unlock dollar liquidity without selling their coins, which could support BTC demand in weak markets and add fresh activity to Aave. The governance votes ahead will show whether DeFi's biggest lender is ready to trust Bitcoin in its raw form.

Read also: BREAKING: Bitcoin Bounces Back Above $82,000 as Fed Rate-Hike Fears Cool — Dollar and Yields Fall

This post is news only, not financial advice. Always do your own research before buying or selling crypto.

Sources: Cointelegraph, CryptoTimes, TokenPost, Crypto.news