3 payment rules control Aave’s native Bitcoin market, but only WBTC settles them

If the borrower owes WBTC, the keeper must transfer WBTC to repay the loan even when the application fee and borrower-surplus payment are zero.

The assessment said the integration contracts had not been deployed on Ethereum mainnet. Babylon’s contract directory, checked Oct. 25, identifies its published addresses as Sepolia testnet deployments.

Two routes, three payment requirements

A borrower’s native $BTC would remain in a Bitcoin vault, and Aave would recognize that collateral through a restricted internal ERC-20 accounting record, which users cannot trade as a wrapped Bitcoin token.

Through the proposed Liquidation Liquidity Provider (LLP) route, an outside liquidator would repay the borrower’s debt and receive an immediate WBTC payout.

The settlement component, BTCVaultSwap (the Swap Spoke), would place the seized vault in escrow and draw the payout from Aave’s shared liquidity pool (the Hub). The underlying $BTC would remain on Bitcoin.

An authorized keeper acting as an arbitrageur would then be expected to buy the escrowed vault and handle redemption on Bitcoin. The process depends on a willing eligible buyer completing that purchase.

The Babylon proposal also describes a direct route for keepers with the vault’s committed Bitcoin redemption rights. Such a keeper would fund debt repayment and take the seized vault into redemption without the Swap Spoke’s new Hub-funded payout or its escrow step.