Aave kicked off a temperature check governance proposal this week that would create a dedicated Bitcoin spoke inside Aave V4, powered by Babylon. The idea: let users borrow against native Bitcoin collateral — no wrapped tokens, no centralized custody. The proposal landed on Aave's governance forum Wednesday and is now open for DAO feedback.
Inside the proposal
Right now, if you want to use Bitcoin as collateral in DeFi, you've got limited options. Most protocols require a wrapped version like WBTC — which means trusting a custodian. Aave's pitch is different. The proposed spoke would sit on Babylon's infrastructure, allowing users to deposit native BTC directly and borrow against it. No bridging, no wrapping. Aave says that cuts out the middleman risk that's long been a sore spot for Bitcoin holders eyeing DeFi.
How Babylon fits in
Babylon is a protocol that lets Bitcoin secure proof-of-stake networks. By plugging into it, Aave can accept native BTC as collateral while still getting the security guarantees needed for lending. The temperature check doesn't get into technical specifics yet — that'll come if the DAO signals support. But the gist is that Babylon handles the Bitcoin staking layer, and Aave manages the lending markets on top.
The timing isn't accidental. Aave V4 is still in development, so baking this in now means the Bitcoin spoke can be part of the core architecture, not bolted on later.
What happens next
This is just a temperature check — the earliest stage of Aave's governance process. The DAO has about a week to weigh in before the proposal could move to a formal snapshot vote. If it passes, Aave would draft a full AIP (Aave Improvement Proposal) with all the implementation details.
There's no guarantee it'll go through. Aave's DAO has rejected similar expansions before when the risk-reward didn't add up. But native Bitcoin lending has been a white whale in DeFi for years. If this one sticks, it could open the door for the biggest crypto asset to work in DeFi without the trust compromises that have held it back.
