PANews reported on December 3rd that, according to CoinDesk, Bitcoin staking project Babylon has partnered with decentralized lending protocol Aave to allow Bitcoin to be used directly as collateral without needing to be packaged or centrally custodied. In addition to lending, Babylon plans to expand its vault design into the DeFi insurance sector, enabling Bitcoin to serve as collateral for insurance against protocol hacks. If no payout occurs, the Bitcoin deposited in the insurance pool will generate returns; conversely, in the event of a hack, this Bitcoin will provide liquidity for claims.

Babylon is partnering 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 on Aave's marketplace. Testing is planned to begin in early 2026, with the product expected to launch around April.