Native Bitcoin collateral on Aave triggers WBTC pool deficit

Aave’s proposed native Bitcoin lending market would keep collateral in Bitcoin while borrowing wrapped Bitcoin (WBTC) to pay outside liquidators immediately. Suppliers financing those payouts would face any settlement shortfall without funded protection.The design in Babylon Labs’ Oct. 14 proposal separates fast liquidation from the slower redemption of Bitcoin collateral. Its open route draws WBTC from Aave’s shared liquidity pool, called a Hub, until a permissioned buyer takes over the vault.A direct keeper route lets an authorized operator finance repayment and redeem the BTC itself.The Aave Request for Comment lists feedback, a conditional Snapshot vote, and an eventual on-chain proposal with full risk parameters as subsequent steps.Who finances the waitA borrower would lock BTC in an individual Taproot vault on Bitcoin, and Aave would recognize it through a restricted ERC-20 accounting token that cannot be traded between users. The WBTC used for liquidation settlement is a separate asset.When a position becomes liquidatable, an outside liquidator would repay the borrower’s debt asset through the integration’s adapter. The seized vault would then be sold to the BTC Vault Swap S...