Aave’s proposal to let users borrow stablecoins against native Bitcoin cleared an early governance vote, but final on‑chain approval and rollout details remain pending.
Aave’s latest governance vote has cleared a key hurdle for a new lending product that would allow users to borrow stablecoins using native Bitcoin as collateral. The early ARFC (Aave Risk Framework Committee) vote on Nov. 9 received unanimous support, according to a report from Babylon Labs, but the proposal still requires a final AIP (Aave Improvement Proposal) on‑chain vote before it can be deployed on mainnet.
The approved framework envisions a dual‑hub structure. The Core Hub would provide initial stablecoin credit lines totaling $21 million, split between $8 million each for USDT and USDC, $1 million for GHO, and $2 million each for USDG and RLUSD. A separate Babylon Hub would enable liquidity providers to expose themselves to native Bitcoin collateral, with its own risk parameters. LlamaRisk, a risk advisory firm cited in the proposal, recommends a 78% collateral factor for Bitcoin, meaning borrowers could receive up to 78% of the BTC’s value in stablecoins.
Under the design, the underlying Bitcoin remains locked on the Bitcoin blockchain, while an Ethereum‑based accounting record represents the collateral within Aave. This approach avoids the need for users to supply wrapped Bitcoin (WBTC) directly, although WBTC still plays a role in the liquidation process. If a borrower is liquidated, a permissionless route would allow a BTCVaultSwap contract to draw WBTC from an Aave Hub to settle the debt instantly with liquidators. Permissioned arbitrageurs could later repay the WBTC debt and redeem the original BTC over several days. The proposal caps the settlement venue’s draw at 100 WBTC, separate from the stablecoin lending caps.
Despite keeping the BTC on its native chain, the structure does not eliminate liquidation or settlement risk. Liquidations would seize entire vaults, even when the debt is smaller than the vault’s total BTC value, and borrowers would receive discounted compensation in wrapped BTC for any remaining collateral. Babylon Labs indicates that a restricted rollout will precede a broader launch, with participant and volume limits in place initially. The project targets a late‑2026 mainnet deployment, but the exact schedule and participant criteria remain to be confirmed after the final AIP vote.
Stakeholders should monitor the upcoming AIP vote, which will determine whether the proposal moves from governance approval to on‑chain implementation. Subsequent updates from Babylon Labs are expected to outline the staged rollout plan, participant eligibility, and any adjustments to collateral factors or credit limits. Additionally, market participants will be watching how the liquidation mechanism involving WBTC performs in test environments, as its effectiveness could influence broader adoption of native‑asset‑backed lending on Aave.
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