Bitcoin holders can now deposit native BTC into a Bitcoin Collateral Vault on Bitcoin L1 and borrow real USDC against it on Ethereum. The demo runs on mainnet with a capped position size per wallet, so the community can use the real system ahead of production launch.

Key takeaways:

  • Native BTC in, Ethereum USDC out. All on mainnet. The BTC sits in a self-custodial vault on Bitcoin L1 and the loan is drawn on Ethereum.
  • No wrapping, bridging, or handing the BTC to anyone. The BTC never leaves Bitcoin.
  • Demo positions are capped at 0.001 BTC collateral per wallet (~$86 at time of writing).
  • Each vault holds one depositor's BTC and is never pooled. No operator can send your BTC anywhere you did not sign for at deposit.
  • Zest Protocol is becoming the capital layer for Bitcoin. Bitcoin Collateral Vaults are the product behind it.

Try the demo at btc-collateral-vaults.zestprotocol.com

How Bitcoin Collateral Vaults work

Your BTC goes into a self-custodial Taproot vault on Bitcoin L1. The vault's state is represented on Ethereum as a collateral record tied to that specific vault, and smart contracts on Ethereum let you borrow USDC against. Your BTC facilitates borrows without moving from Bitcoin L1.

The BTC stays locked on Bitcoin, never wrapped, never bridged. Every way the BTC can ever leave the vault is signed by you at deposit, and nobody can add a destination afterwards. The BTC stays in your self-custodial vault for the life of the loan. The only way it leaves is if the position breaches its liquidation threshold, and even then only the required slice moves to a registered liquidator. Every other outcome returns the BTC to you.

Your Bitcoin always has a way home. Each vault holds only the depositor's coins, and the BTC is never pooled with anyone else's. Once your debt is zero, the transaction that returns your BTC already carries your signature, so no operator can create a different outcome. And if Zest Protocol's services or Ethereum itself fail, a debt-free vault returns to your Bitcoin key after a Bitcoin-enforced timelock.

Positions are also fully divisible. Withdraw excess collateral in flexible amounts, and a liquidation takes only the required slice rather than the whole vault. No all-or-nothing positions.

Bitcoin Collateral Vaults are designed for BitVM proof verification. BitVM brings fraud proofs to Bitcoin itself, so what happened to the loan on Ethereum can be verified on Bitcoin before the vault settles. The technical documentation goes into more detail on how that shrinks the trust assumptions to zero.

The capital layer for Bitcoin

Today also completes the repositioning of Zest Protocol. The lending-protocol framing is retired. Zest Protocol is a capital layer for Bitcoin, turning Bitcoin from an idle asset into productive capital.

Putting Bitcoin to work has meant trade-offs: wrap it, bridge it, or hand it to someone. Bitcoin Collateral Vaults remove those trade-offs. Native BTC stays on Bitcoin while its value works on another chain - for example to borrow stablecoins.

Borrowing stablecoins on Ethereum is the first application. The same infrastructure supports yield and other financial uses of Bitcoin, with the BTC remaining self-custodial on Bitcoin throughout.

Built by the team behind Bitcoin's largest L2 market

The Zest Protocol team are Stacks core contributors who helped ship sBTC and the Nakamoto upgrade, then built the largest DeFi market on Bitcoin L2s: two years live, $100M+ peak TVL, zero bad debt, no BTC lost.

That experience taught the team how programmable Bitcoin can reach billions of users on Bitcoin itself. Bitcoin Collateral Vaults are shaped by years of experience running lending markets; that translates into great UX. Users just need an ordinary Bitcoin key to participate, and partial withdrawals and soft liquidations are supported from day 1.

Tim Draper, whose Draper Associates led Zest Protocol's Seed round:

“We backed Zest Protocol because this team has been building on Bitcoin longer than almost anyone, and they know how to ship great products with amazing user experience. Seeing real Bitcoin collateral working on mainnet, with the coins never leaving Bitcoin, is something I'm incredibly excited about.”

For the Stacks products, nothing changes

Zest Protocol's Stacks Market V2, Stacks Vaults and Swap continue as before, with many exciting new feature releases in the pipeline. Bitcoin Collateral Vaults are a separate product and do not affect any existing Stacks position.

Try the demo at btc-collateral-vaults.zestprotocol.com, or read the technical documentation for the full design.