Markets
Zest Protocol Launches Bitcoin Collateral Vaults for EVM Chain Loans
Zest Protocol has launched a new feature called Bitcoin Collateral Vaults, enabling users to borrow against their Bitcoin holdings without the need to wrap the asset. This innovation aims to keep Bitcoin on its native blockchain while allowing users to access liquidity on Ethereum and other EVM chains.
On September 23, 2026, Zest unveiled a capped mainnet demo of its vaults, which are designed to be self-custodial and governed by Bitcoin’s own rules. Each vault is a Taproot output that holds a user’s Bitcoin, ensuring that coins from different users are never pooled together. The vaults allow for loans to be drawn in USDC from connected lending markets while the Bitcoin remains securely stored in the vault.
According to Zest Protocol, this method of borrowing leverages Bitcoin’s strength as a collateral asset without the risks associated with wrapped tokens, which often depend on custodians for redemption. The design also includes features for partial liquidations and allows borrowers to adjust their collateral based on Bitcoin’s price movements.
In the first phase of production, independent guardians will oversee the settlement of loans, ensuring that all transactions are authorized and valid. Zest plans to transition this role to a system called BitVM, which will enhance the verification process without altering Bitcoin’s underlying rules.
As the crypto lending landscape evolves, Zest’s approach represents a significant shift towards utilizing Bitcoin directly for loans, potentially setting a new standard in the industry.
FAQ
What are Bitcoin Collateral Vaults?
Bitcoin Collateral Vaults are a new feature launched by Zest Protocol that allows users to borrow against their Bitcoin holdings without wrapping the asset. This means users can access liquidity on Ethereum and other EVM chains while keeping their Bitcoin on its native blockchain.
How does the borrowing process work with Bitcoin Collateral Vaults?
Users can deposit their Bitcoin into a vault, which is a Taproot output that holds their coins securely. They can then draw loans in USDC from connected lending markets while their Bitcoin remains stored in the vault, ensuring that the coins are never pooled with others.
What are the benefits of using Bitcoin Collateral Vaults over wrapped tokens?
Using Bitcoin Collateral Vaults eliminates the risks associated with wrapped tokens, which often rely on custodians for redemption. This method leverages Bitcoin's strength as a collateral asset while maintaining its security and integrity on the native blockchain.
What measures are in place to ensure the security of loans and transactions?
In the first phase of production, independent guardians will oversee the settlement of loans to ensure all transactions are authorized and valid. Zest Protocol plans to transition to a system called BitVM for enhanced verification without altering Bitcoin's underlying rules.
How does Zest Protocol plan to adapt to price movements of Bitcoin?
The design of the Bitcoin Collateral Vaults includes features for partial liquidations and allows borrowers to adjust their collateral based on Bitcoin's price movements, providing flexibility and risk management for users.