Babylon Labs has submitted a proposal to integrate native Bitcoin as collateral on Aave V4 without requiring wrapped BTC or a central custodian. The mechanism relies on Trustless Bitcoin Vaults using Taproot: users lock their BTC on the Bitcoin network while Aave records restricted collateral units within a dedicated lending market. This approach would allow Bitcoin holders to borrow stablecoins while keeping their assets under Bitcoin-side spending conditions. The project remains at a governance stage: risk parameters, community review, a Snapshot vote and an on-chain proposal are still required before any implementation.
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