Babylon Labs has just published a whitepaper detailing Trustless Bitcoin Vaults, a mechanism designed to enable native Bitcoin to function as collateral in DeFi applications without requiring bridges, custodians, or wrapped assets.
Key highlights:
🔸Vault Structure: Vaults consist of Bitcoin UTXOs locked via pre-signed transactions with cryptographic spending conditions. Withdrawals require submission of a zero-knowledge proof (ZKP) verifying the state of external smart contracts.
🔸BitVM3 Integration: Utilizes BitVM3 for Bitcoin-native verification of off-chain proofs through ZKPs and garbled circuits, allowing BTC to interact with protocols on chains like Ethereum or Cosmos while remaining on Bitcoin.
🔸Enforcement and Security: Spending rules are enforced cryptographically; invalid proofs can be challenged with evidence. Assumes an honest price oracle for collateralized scenarios and minimizes trust compared to traditional bridges.
Use Cases: Includes BTC-backed lending (with liquidation via ZKP), stablecoin issuance, perpetual DEX collateral, and integration with Bitcoin staking for enhanced capital efficiency.
Cost Considerations: On-chain costs for typical operations are low (around $2.66 for deposit/withdrawal), with off-chain elements like garbled circuit generation (20 minutes) and storage (43 GB) manageable.
The approach aims to activate idle BTC, currently over 99% unused in DeFi, by providing a self-custodial alternative to custodian-reliant wrapped BTC.
Read more below 👇
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