Aave has announced a strategic partnership with Babylon to enable Bitcoin staking by using native BTC as collateral on Aave V4.

How it will work

The feature relies on the Babylon Bitcoin Vault to lock BTC on the Bitcoin mainnet and mint a cryptographically verifiable DeFi representation.

That synthetic representation can be supplied as collateral within Aave V4, allowing users to access lending and yield strategies without custodial intermediation.

Trust model

Keeping BTC locked on the native chain reduces reliance on custodians and provides a cryptographically verifiable asset for DeFi use.

Market outlook

Industry projections estimate that by 2025 the volume of Bitcoin-backed lending will exceed $1 billion, with institutional demand expected to grow.

Babylon reports a locked value of $5 billion in BTCFi, maintaining a leading position despite competition from Ethereum and other platforms.

Implications for Aave users

For Aave users, the integration expands acceptable collateral types on Aave V4 and could broaden access to BTC-denominated credit products within decentralized markets.