Aave's Native Bitcoin Vote Separates Custody From Liquidity

Aave's proposal to accept native Bitcoin (BTC) collateral through Babylon Trustless Bitcoin Vaults has advanced to a scheduled community poll. Aave Labs announced the Snapshot step on 5th November 2026. The poll is scheduled from 14:03 UTC on 6th November to 14:03 UTC on 9th November.

The design addresses two different problems: keeping deposited Bitcoin on Bitcoin's network and providing assets that a liquidator can receive immediately on Ethereum (ETH). Avoiding a custodian for the deposit does not remove the need to finance the wait for redemption.

Native Collateral, A Separate Settlement Route

Under Babylon's proposal, BTC would be locked in a Bitcoin transaction output with preset spending conditions. Aave V4 would recognise it through a token restricted to the integration's contracts. That token would be an internal collateral record, rather than something users could trade freely.

Our Bitcoin explainer explains the underlying network, while our wallet guide examines the separate question of who can authorise spending.

Liquidation means recovering a loan when its collateral no longer provides the required coverage. In this proposal, the native BTC vault could take several days to redeem because claims pass through a challenge period. Only actors committed to the vault in advance would have redemption rights.

A separate swap component would let other liquidators receive wrapped Bitcoin immediately. It would borrow that asset from Aave's shared liquidity pool and hold the seized native BTC vault. Authorised arbitrageurs would later buy the vault, repay the borrowing and redeem its Bitcoin. The original collateral would remain native, but this permissionless liquidation route would still use a Bitcoin wrapper for payment.

The Risk Review Separates Backing And Exit Liquidity

In its 23rd October assessment, LlamaRisk supported onboarding and recommended independent proof of reserves for the locked Bitcoin. It also identified a configuration requirement: the collateral record must remain non-borrowable, or a check protecting its one-to-one accounting relationship could halt liquidations.

LlamaRisk discloses partial funding from the Aave decentralised autonomous organisation, the governance body. It says the assessment was independently prepared and that the reviewed protocol did not pay for it.

Aave's voting guide describes Snapshot votes as non-binding polls used to assess support before formal governance action. This scheduled poll therefore concerns whether the integration should progress. It does not itself enable borrowing against native Bitcoin.