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Babylon's Trustless Vaults to Add Native Bitcoin-Backed Lending Through Aave
Source: CryptoNewsNet Original Title: Babylon’s Trustless Vaults to Add Native Bitcoin-Backed Lending Through Aave Original Link: Bitcoin staking project Babylon has teamed up with the largest decentralized lending protocol Aave, allowing BTC to be used directly as collateral without wrapping or centralized custody.
Beyond lending, Babylon is also preparing to extend its vault design into decentralized finance (DeFi) insurance, allowing BTC to serve as collateral for coverage against protocol hacks. BTC would be deposited into insurance pools and earn yield if no payouts occur, while providing liquidity for claims when hacks happen.
That initiative is in development and expected to be announced by January 2026.
Babylon and Aave team up to reshape BTC lending
Although BTC-backed lending has become a multibillion-dollar sector, much of that activity relies on custodial models, whereby users are given a tokenized version of the bitcoin. Even the largest of these — Wrapped Bitcoin (WBTC) — constitutes far less than 1% of bitcoin’s total market cap, a key limitation for DeFi protocols hungry for deeper liquidity.