Aave Opens Snapshot Vote on Native Bitcoin Collateral Via Babylon

Aave is taking its first formal step toward accepting raw bitcoin as collateral. The DAO posted an ARFC to Snapshot titled '[ARFC] Onboard Native BTC as Collateral to Aave V4 via Babylon Trustless Bitcoin Vaults,' with voting set to open Nov. 6 at 9:03 a.m. ET and close Nov. 9 at the same hour. Ballots can be cast For, Against or Abstain. As of 11:59 a.m. ET on Nov. 5, the proposal sat pending with zero votes and no voting power recorded.

The mechanics matter here. Under Babylon's design, BTC stays in vaults on the Bitcoin network instead of being handed to a custodian for a tradable wrapper. Aave would book the collateral through a transfer-restricted ERC-20 token used purely for internal accounting — the bitcoin itself never leaves its chain. That is the difference between lending against wrapped bitcoin and lending against bitcoin.

Two new Spokes carry the load. The Babylon Spoke takes native BTC as its sole collateral and pulls loan assets from an Aave V4 liquidity Hub, while the BTC Vault Swap Spoke handles liquidation settlement. That second module exists to solve a real snag: native BTC redemption takes several days and is limited to participants named in advance in each vault. So other liquidators could take WBTC right away, borrowed from the Hub against seized vaults, with approved arbitrageurs later buying those vaults, repaying the WBTC and redeeming the bitcoin.

LlamaRisk, Aave's risk service provider, published its recommendations on Oct. 23 — a 300 BTC collateral cap, a 78% collateral factor and Chainlink's BTC/USD SVR feed for pricing. Those are proposed settings, not a live market configuration. Access would also start narrow, with LlamaRisk's assessment describing an approved group of institutional and partner users first and public access planned later.

The proposal builds on a discussion-stage plan published Oct. 14. House rules require a 320,000 AAVE voting-power threshold to reach the Snapshot stage, and while a passing ARFC counts as a binding governance commitment, it does not switch the market on. If the vote clears, Babylon's stated next step is an Aave Improvement Proposal carrying full risk parameters, which still needs its own onchain approval and execution before any BTC can be pledged.