Aave passes native Bitcoin lending proposal, but hidden liquidation risks remain
Summary
Aave’s preliminary governance vote approved a proposal to let users borrow stablecoins against Bitcoin held in Babylon Trustless Bitcoin Vaults, without wrapping the collateral for ordinary borrowing. An Ethereum accounting token would represent the locked BTC, while Aave’s Core Hub would initially offer specified USDT, USDC, GHO, USDG and RLUSD credit limits. Risk adviser LlamaRisk recommends a 78% collateral factor. Liquidations still carry risks and may use WBTC for settlement. The proposal needs a final on-chain AIP vote before launch; Babylon targets mainnet in late 2026, with rollout details and timing still subject to confirmation.
