Aave to Consider Bitcoin as Collateral, A Better Buy Than BTC?

Precedent & Market Context

The integration of native Bitcoin as collateral on Aave is a significant development in the DeFi space, following previous milestones such as the integration of Ripple's stablecoin RLUSD by US bank Cross River Bank and the growth of Spark Liquidity Layer to over $3 billion in assets deployed across various DeFi platforms.

Aave Proposes Native Bitcoin as Collateral

Babylon Labs recently proposed that Aave accept native Bitcoin as collateral, cutting out custodians entirely and unlocking stablecoin borrowing directly for BTC holders. This proposal aims to attract Bitcoin holders who prefer not to give their assets to a custodian, bringing in more interest income for the platform.

Community Review and Vote

The proposal is currently being reviewed by the Aave community, and a Snapshot vote is expected to take place soon. The community must provide feedback and assess the risks involved before the proposal can move forward. Once the proposal is approved, a binding on-chain vote called an Aave Improvement Proposal (AIP) will establish the full risk parameters.

The integration of native Bitcoin as collateral on Aave could impact its price, as Bitcoin holders may begin to move their assets into Aave to access cash without selling their Bitcoin. However, the community review and vote are still pending, making it uncertain whether Aave will integrate native Bitcoin.

Aave is moving closer to accepting native Bitcoin as collateral, which could impact its price and make it a better buy than Bitcoin. The community review, risk assessment, and on-chain vote are still pending, making it uncertain whether Aave will integrate native Bitcoin. Bitcoin holders may benefit from this proposal without voting themselves, as lending with native BTC becomes popular.

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