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

Babylon Labs’ proposed native Bitcoin lending market on Aave V4 would still need Wrapped Bitcoin (WBTC) for its direct-liquidation fallback whenever application fees or borrower compensation are due. An operator with the vault’s Bitcoin redemption rights could bypass Aave’s shared lending pool yet still be unable to complete a liquidation if those WBTC payments cannot move. The distinction comes from risk assessor LlamaRisk’s Oct. 23 pre-listing assessment. The direct route can avoid the funding constraint of running out of WBTC lending capacity by having an authorized keeper finance the liquidation itself. Required payment failures can affect both routes. 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.

First reported by CryptoSlate. This page is a short excerpt; the full text is theirs.