Zest Protocol has launched a capped mainnet demo of its Bitcoin Collateral Vaults, allowing users to borrow against BTC on EVM chains without wrapping their assets. The system keeps BTC on the Bitcoin layer-1 network using self-custodial vaults based on Taproot outputs.
The vaults operate by locking BTC in a specific output, while a collateral record on an EVM chain enables borrowing of USDC. Users can adjust their positions by adding collateral or withdrawing excess amounts. Partial liquidations are supported, returning remaining BTC to the vault.
In the current production phase, independent guardians verify settlements and handle potential invalid payouts. Zest plans to transition this verification process to BitVM, which uses zero-knowledge proofs to confirm computations on Bitcoin without altering its base rules.
The protocol includes a recovery mechanism that allows depositors to reclaim BTC after a timelock expires if the destination chain fails. This process requires only the user's key and public vault data, operating independently of Zest's signatures.
Zest faces competition from projects like Babylon Labs, which also proposes vault systems using Taproot. While Zest currently relies on guardians, it aims to reduce on-chain costs using BitVM3, with projected costs estimated to be under $100 per transaction.
