Babylon Labs and Aave Labs have entered a strategic partnership to introduce native Bitcoin-backed lending to the Aave ecosystem through Aave V4’s Hub and Spoke architecture. This collaboration marks a major step forward in enabling Bitcoin to function as productive collateral across global onchain financial markets, trustlessly and without centralized custody.
1. Introducing Native BTC Collateralization on Aave V4
Aave V4 is Aave Labs’ next-generation lending architecture, designed to support purpose-built markets through a modular Hub and Spoke model.
Babylon will develop a dedicated Bitcoin-backed Spoke, enabling native BTC to be supplied as collateral on Aave for the first time, at scale and without wrapped assets.
At the core of this integration is the Babylon Bitcoin Vault, a cryptographic mechanism that locks Bitcoin directly on the Bitcoin network while producing verifiable collateral representations for use in DeFi.
This design eliminates reliance on centralized custodians or bridges, long-standing barriers to native Bitcoin participation in DeFi lending.
2. Why This Matters: Unlocking a Multi-Billion Dollar Market
Bitcoin-backed lending has grown quickly in 2025:
- Over $1 billion in BTC-backed loans originated this year
- The broader borrowing market is expected to reach tens of billions of dollars as institutional demand accelerates
- Yet the vast majority of BTC lending remains centralized or dependent on wrapped BTC
The absence of trustless, native Bitcoin collateral has limited Bitcoin’s role in non-custodial lending markets.
This integration directly addresses that gap.
3. Partnership Scope and Development Timeline
Under the collaboration:
- Babylon will build the Bitcoin-backed Spoke for Aave V4
- Aave Labs will provide architecture guidance, risk considerations, and onboarding workflows
- Testing is scheduled to begin in Q1 2026
- A joint product launch is targeted for April 2026, pending Aave governance approvals
Together, the teams aim to introduce a scalable, secure, and trust-minimized path for Bitcoin holders to borrow assets while preserving Bitcoin’s native security properties.
4. Leadership Perspectives
“Trustless Bitcoin vaults allow native BTC to participate directly in DeFi while preserving its fundamental security guarantees. Integrating with Aave V4 gives this technology an immediate and meaningful use case.”
— David Tse, Co-Founder, Babylon
“The Bitcoin-backed market on Aave V4 demonstrates how easily new markets can be launched using Aave V4’s Hub and Spoke model. This brings native BTC into DeFi without wrappers or centralized custody.”
— Stani Kulechov, Founder & CEO, Aave Labs
5. Extending Babylon’s Mission: Productive Bitcoin at Global Scale
This initiative builds on Babylon’s broader vision of enabling Bitcoin to operate as active liquidity within decentralized finance:
- Trustless Bitcoin Staking has already activated more than $6 billion in native BTC
- Trustless Bitcoin Vaults extend that utility to the broader $1.7 trillion Bitcoin market
- Institutions, including lenders, asset managers, and custodians, gain a path to use BTC as high-quality, self-custodial collateral
Together, these products strengthen Bitcoin’s role as a foundational settlement asset for the emerging multi-chain economy.
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