Babylon's Trustless Vaults will add native Bitcoin collateral loan functionality through Aave

According to CoinDesk, the Bitcoin staking project Babylon has partnered with the decentralized lending protocol Aave, allowing Bitcoin to be used as collateral directly without the need for wrapping or centralized custody.

In addition to lending services, Babylon is also preparing to expand its treasury design into the DeFi insurance sector, enabling Bitcoin to serve as insurance coverage for collateral against protocol hacks. If no claims occur, the Bitcoin deposited in the insurance pool will generate returns; when a hacking incident occurs, this Bitcoin will provide liquidity for claims. Babylon is collaborating with Aave to combine Babylon's Trustless Vaults with Aave's "hub-and-spoke" architecture.

Babylon will build a dedicated Bitcoin-backed "branch" within Aave's lending "hub," allowing users to deposit Bitcoin on its base chain while borrowing stablecoins and other assets in Aave's market. The testing plan is set to launch in early 2026, with the product expected to be released around April.