Babylon Labs is advancing a plan to use Bitcoin as collateral on Aave V4 while keeping the BTC on the Bitcoin network at all times. The Trustless Bitcoin Vaults protocol locks coins in self-custodial Taproot UTXOs on Bitcoin with programmable rules enforced through zero-knowledge proofs, replacing the role of a traditional custodian. On Aave, an internal accounting mechanism called vaultBTC serves as a verifiable record of BTC held in vaults. Liquidations are settled in WBTC rather than native BTC, allowing liquidators to receive a familiar asset immediately without borrowers having to wrap their coins. Public testnet has been live since October 2026, but risk parameters and further Aave DAO votes remain pending before mainnet deployment.
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