Babylon advanced a proposal to introduce native Bitcoin lending on Aave V4, but before its official launch, it still needs to go through further voting and security reviews.

This Bitcoin-focused development company, Babylon Labs, has submitted a proposal to allow users to use native Bitcoin (BTC) as collateral to borrow stablecoins on Aave.

According to this scheme, users will lock BTC in a vault on the Bitcoin network and use it as collateral to borrow from Aave. A non-transferable token on Ethereum will represent this portion of the collateral, while BTC itself will remain on its native blockchain and will not be cross-chain bridged or packaged.

Babylon Labs indicates that this proposal, submitted on Wednesday, continues from the initial submission on May 25th and the preliminary community vote that was passed on June 10th.

According to the proposal, Aave DAO will receive the first $500,000 of the annual income generated by this integration that meets the criteria.

Aave currently supports lending that uses packaged tokens such as Bitcoin as collateral, for example, Wrapped Bitcoin ( WBTC ) and Coinbase Wrapped Bitcoin ( cbBTC ). Such packaged tokens rely on the custodian to hold the underlying Bitcoin, which therefore introduces counterparty risk.

As of Thursday, the proposal is still in the feedback solicitation phase ( ARFC ) of Aave , and it still needs to accept community feedback and risk analysis.

If the community reaches a consensus, the proposal can proceed to a three-day off-chain Snapshot voting period; according to the governance rules of Aave, at least 320,000 votes equivalent to AAVE are required during this phase to proceed to the official on-chain voting.

On-chain voting must also meet the requirements for a quorum of participants and approval.

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