Summary

  • Babylon Labs published an ARFC on October 14, 2026, to bring native Bitcoin as collateral to Aave V4.
  • The plan uses trustless vaults and new spokes to allow borrowing stablecoins against BTC without wrapping or custodians.
  • DeFi TVL reached $88.872B as of October 20, 2026, while Bitcoin gained 2.1 percent that week.

Babylon Labs put forward the ARFC on October 14, 2026. It pushes native Bitcoin as collateral for Aave V4. The idea uses Taproot UTXOs so holders can borrow stablecoins without wrapping their BTC or relying on custodians.

This comes as Aave V4 develops further and DeFi grows steadily.

Context

Bitcoin holders have long faced limits when seeking DeFi yields. Wrapped BTC solutions introduce counterparty risk and extra steps that many users prefer to avoid. Native support would fix this by keeping everything on the Bitcoin chain.

The October 14 ARFC continues talks that started earlier in 2026.

Details

The ARFC adds two new Aave V4 spokes. They are the Babylon Spoke and the BTCVault Swap Spoke. These handle borrowing and liquidations while Bitcoin stays in the user's Taproot UTXO.

The underlying BTC never leaves the native chain.

"Today, we published an ARFC on the @aave governance forum to propose native Bitcoin to Aave V4 as collateral through Babylon Trustless Bitcoin Vaults (TBV). The proposal includes two new Aave V4 Spokes; Babylon Spoke and BTCVault Swap Spoke for borrowing and liquidation."

, Babylon Labs (@babylonlabs_io)

Forum participants question the details and risk settings as the proposal advances. The plan relies on Babylon's existing staking infrastructure to enforce vault rules without requiring third-party custody.

Market data shows DeFi TVL at $88.872B as of October 20, 2026. Bitcoin rose 2.1 percent over the prior week, providing a supportive backdrop for collateral expansion discussions.

  • The proposal avoids wrapped BTC entirely.
  • Liquidations would occur through the new spokes without moving the original collateral off-chain.
  • Further technical audits and parameter tuning remain open items in the governance process.

Outlook

The Aave community will keep reviewing the ARFC and any AIP votes. Observers await updates on security reviews and parameters before mainnet.