Proposal Sets 78% Native Bitcoin Collateral Factor and 300 BTC Cap on Aave V4
Key Facts
LlamaRisk’s assessment proposes listing native Bitcoin as collateral in Aave V4 through Babylon vaults, with a 78% collateral factor and an initial supply cap of 300 BTC. These figures remain market-configuration recommendations, not approved settings or evidence that the market has launched. The proposal’s vote or timing could not be verified through an open page from a reliable source. The proposal is part of Babylon’s plan to add two new lending modules to Aave V4. The design makes native Bitcoin the sole collateral asset in the Babylon module, allowing borrowing in stablecoins.
LlamaRisk supports listing native BTC without a custodian, wrapped asset or bridge, according to its assessment published on the governance forum. Aave, however, does not interact directly with a Bitcoin balance on its network; the collateral is represented internally by a transfer-restricted ERC-20 token for accounting purposes. BTC remains locked on the Bitcoin network, while the internal representation connects it to the protocol’s lending functions. The assessment proposes keeping this collateral non-borrowable across all lending modules. Loan liquidity comes from lending positions in Aave, while Bitcoin itself remains the loan collateral.
The proposed initial configuration includes credit lines from Core Hub to Babylon Core Lending Spoke of 8,000,000 USDT and 8,000,000 USDC. It also specifies 1 million GHO, 2 million USDG and 2 million RLUSD among the proposed lines. These amounts represent preliminary credit limits in the risk assessment, not funds drawn or financing deployed. The assessment recommends using Chainlink’s BTC/USD SVR feed to price native Bitcoin collateral in Aave V4. The proposed setup thus combines a collateral cap, borrowing-liquidity lines and a pricing source for the asset.
LlamaRisk’s assessment says depositing BTC into the vault takes about two hours, while redemption takes about four days. It links the redemption period to settlement on the Bitcoin network and the challenge window, making exit from the position slower than deposit. The represented BTC also has no secondary market, and liquidation capacity depends on WBTC liquidity available in Core Hub, as well as liquidators and arbitrageurs. The available WBTC balance there rose from zero at the end of March 2026 to about 512 WBTC at the time of the October 23 assessment, with utilization of about 1.9%. The assessment says this low utilization leaves most of the balance available for withdrawal, but it remains part of the proposed liquidation arrangements.
On readiness, LlamaRisk’s assessment said the integration contracts had not been published on Ethereum mainnet at the time it was issued. It said initial audit findings included high- and critical-severity issues, which were reported as resolved after additional audit rounds. The design also includes an allowlist on Ethereum, limiting token issuance at launch to permitted depositors instead of opening deposits directly to the public. Commenting on the proposal, Aave Labs said the security review included two internal rounds using manual review and AI tools, alongside a review by an external security researcher and a Certora review. The company added that the review reports would be published after the process was complete.
Aave Labs said in its October update that it continued to support Babylon’s integration toward launch, identifying it as a focus for the following month. The company said in the update that Aave V4 deposits had exceeded $1.5 billion, while the protocol’s cumulative borrowing volume reached $1.1 trillion. These figures provide context on the platform’s scale and do not represent a direct impact from the proposal or its vote. Babylon’s proposal also states that the first $500,000 of eligible annual revenue after launch would go entirely to Aave DAO, under a proposed revenue-sharing arrangement between the organization and the Babylon Foundation. The final risk recommendations remain part of the broader governance process, while the published assessment alone does not establish the vote’s outcome or a market launch date.