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Babylon is pursuing a way to use Bitcoin for collateralized lending on Aave V4 without moving it to an external network or wrapping it, Crypto Briefing reported.
The approach is based on Babylon’s trustless Bitcoin vault, or TBV, protocol, under which Bitcoin remains in self-custody on the Bitcoin network. On Aave, BTC held in the vault is represented as “vaultBTC,” a verifiable unit of account. The design would allow users to borrow assets including USDC, USDT and WBTC against that collateral. In liquidations, WBTC would be used so liquidators can receive WBTC immediately instead of waiting for BTC to move on the Bitcoin network when the collateral value falls below lending thresholds.