Aave passes native Bitcoin lending proposal, but hidden liquidation risks remain

Aave's proposal to let holders borrow stablecoins against native Bitcoin cleared its preliminary ARFC governance vote on Nov. 9, according to Babylon Labs. The borrowing market still needs final approval before holders can use it on mainnet. Babylon reported 100% support for the plan to connect its Trustless Bitcoin Vaults to Aave V4, and the next step is an Aave Improvement Proposal (AIP) for final on-chain approval. Under the proposed change, BTC would remain locked on Bitcoin, while an Ethereum-based accounting record would let Aave recognize it. Borrowers would not need to supply a freely transferable wrapped Bitcoin token. The governance proposal sets out initial stablecoin credit lines from Aave's Core Hub liquidity pool of $8 million each for USDT and USDC, $1 million for GHO, and $2 million each…

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