Aave’s Native Bitcoin Plan Still Depends on WBTC When Liquidations Hit

By Isaac • October 26, 2026 8:13 pm •

Aave’s plan to let users borrow against native Bitcoin sounds like a clean break from wrapped assets. The liquidation engine tells a more complicated story.

CryptoSlate explains that Babylon’s proposal would keep a borrower’s collateral inside a Taproot-based vault on Bitcoin while Aave V4 recognizes a restricted accounting token inside a dedicated lending market. Borrowers could draw stablecoins without first handing their BTC to a wrapped-token custodian, but an open liquidation would still depend on WBTC from Aave’s shared Hub so an outside liquidator can receive a transferable asset immediately.

That split is the heart of the design. The collateral can stay native to Bitcoin while the fast settlement layer operates with wrapped Bitcoin on Aave.