Blockchain research and development company Babylon Labs submitted a temperature check to Aave DAO on Monday, seeking approval to integrate Trustless Bitcoin Vaults with Aave V4 and built-in native $BTC as collateral without bridges, wrappers or custodians.
Key Takeaways:
- Babylon Labs submitted a temporary check on May 25 asking Aave DAO to accept natively $BTC collateral via Trustless Bitcoin Vaults on Aave V4.
- The $BTC Vault Swap Spoke is targeting Aave’s $5 billion WBTC offering, which is currently underutilized on the lending side, to drive new demand.
- If the temperature check is successful, Babylon Labs will proceed to ARFC assessment, while audits by Coinspect, Sherlock and Zellic are underway.
$BTC Holders can borrow on Aave V4 Without Bridges if Babylon Labs votes
The proposal calls for the deployment of two new Aave V4 spokes on Ethereum Mainnet. The first, the Babylon Core Lending Spoke, allows this $BTC holders borrow supported assets such as stablecoins and wraps $BTC against their own bitcoin collateral. The second, the $BTC Vault Swap Spoke handles post-liquidation settlement through seized conversions $BTC collateral in WBTC for liquidators without permission.
The mechanism works via Taproot scripts on Bitcoin. A depositor locks $BTC onchain within a Taproot unused transaction output (UTXO). That lock creates a corresponding vault record on Ethereum.
Because Aave V4 only accepts ERC-20 tokens as collateral, adapter contracts represent each vault record one-to-one as a limited-transfer token called vaultBTC. The token can only move between the Aave V4 Hub, the Babylon Core Spoke, and the integration’s adapter contract. Other transfers are not allowed.
Babylon Labs founded the project in 2022 together with Professor David Tse from Stanford and Dr. Fisher Yu op. Since bitcoin ( $BTC) staking protocol launched in August 2024, it has activated more than 100,000 $BTC cumulative and currently contains approximately 51,000 $BTCworth nearly $4 billion, in active stakes.
Investors backing the project include A16z, Paradigm and Polychain, with total funding exceeding $100 million. The underlying cryptography powering Trustless Bitcoin Vaults comes from BaBe, a peer-reviewed paper co-developed by Babylon Labs and UC Berkeley that will appear at CCS 2026, according to the Temp Check.
The research reduces the cost of SNARK-proof verification on Bitcoin by approximately 1,000 times compared to previous approaches, making the tamper-resistant challenge window economically feasible at scale. When a user $BTC position is liquidated, a trustee exchanges the seized safe for WBTC without permission for a small premium. A separate group of licensed arbitrageurs then buys those escrow vaults, repays the WBTC debt and redeems the underlying asset. $BTC originally on Bitcoin.
The structure decouples the timing of the liquidation $BTC repayment, allowing liquidators to settle immediately while the $BTC-side process runs on its own timeline. The proposal also focuses on the use of WBTC on Aave. The platform currently has approximately $5 billion in WBTC supply, which Babylon Labs believes is underutilized on the lending side.
Routing liquidation settlements through WBTC is intended to generate new loan demand for that asset. Aave DAO retains full control over all risk parameters, offering limits, lending limits and governance oversight over both Spokes. The Temperature Check focuses on integration architecture. Risk parameters, Oracle configuration, and full details on trust assumption are expected in a follow-up request from Aave for comment.
Security assessments are currently underway with Coinspect, Sherlock, Zellic, ABDK and ZK Security across the protocol stack, as detailed by Babylon Labs. Formal verification is performed by Runtime Verification.
If the Temperature Monitoring snapshot shows positive sentiment among the community, the proposal will proceed to the ARFC stage for further risk assessment and audit assessment. A successful ARFC snapshot moves it to an onchain AIP vote for final board approval.
Babylon Labs stated that it was not compensated by any third party to publish the proposal.
Community response tends to be positive
The integration, if approved, would deliver results $BTC holders a direct path to decentralized finance (DeFi) lending without transferring custody to a bridge, signatory consortium, or threshold signature group. Building other projects $BTCcollateralized products could also be layered on top of the primitive products, expanding the reach of indigenous products $BTC to broader DeFi activities.
Initial community responses to the governance thread have been broadly supportive. Aave Labs technical services provider Simo noted that the integration aligns with Aave V4’s Hub-and-Spoke design and that routing post-liquidation settlements through WBTC would generate significant loan demand for an asset already heavily marketed on the platform.
Aave founder Stani Kulechov directly supported the Temperature Check, citing enthusiasm for the V4 Spoke ecosystem acquiring real bitcoin collateral. Contributor Nicopei added an institutional angle and pointed out that conservation $BTC native, while offering predictable borrowing costs, addresses the two requirements most often cited by institutional borrowers who currently rely on off-chain solutions.