Zest tests Bitcoin vaults for loans without wrapping BTC

Zest launched a capped mainnet demo of Bitcoin Collateral Vaults on September 23. The vaults keep each user's BTC on Bitcoin while borrowers draw USDC on an EVM chain. The demo uses Ethereum as the EVM chain. Each vault is a Taproot output with spending paths fixed at deposit. The vaults do not pool coins from different users. Borrowers can add collateral after opening a position. Borrowers can withdraw excess collateral if Bitcoin's price rises. Partial liquidations can settle a preset amount and return the remaining BTC to the vault. If the destination chain permanently fails, depositors can reclaim eligible BTC after a Bitcoin timelock expires. Recovery requires the user's key and public vault data without a signature from Zest. Zest founder Tycho Onnasch said the project had spent five years developing programmable Bitcoin. Bitcoin layer-2 networks held 91,332 BTC in May 2026, or about 0.46% of circulating supply, according to Spark's research. Including wrapped tokens and Babylon staking raises the share to about 0.8%. Aave's Ethereum market held about $2.2 billion in supplied WBTC in August 2024, according to Chaos Labs. BitGo said in August 2024 that it would move WBTC custody to a joint venture with BiT Global, which was linked to Justin Sun. Coinbase delisted WBTC in December 2024. Coinbase cited the risk that control would fall into Justin Sun's hands in a court filing responding to BiT Global's lawsuit. Bitcoin enforces the vault's spending rules. Independent guardians handle settlement checks during the first production phase. Guardians can reverse an invalid payout during a contest window if a quorum agrees. Zest says no operator can add outcomes, change amounts, or redirect payouts after a vault is set. Zest plans to replace the guardians with BitVM verification. Under the planned design, challengers can dispute repayment or liquidation claims during a set window. An invalid zero-knowledge proof would allow a challenger to block a withdrawal. Security depends on Zest's selected construction and on an honest challenger acting in time. Published BitVM3 benchmarks cited by Zest put onchain costs below $100 under the benchmarks' assumptions. Babylon Labs proposed a similar Taproot-based vault system for Aave V4 in May. Babylon's proposal uses zero-knowledge proofs and challenges without a custodian or signer group holding discretionary control over BTC. Zest has not disclosed the identities of its guardians or the number needed for a quorum. Zest has not detailed the duration of liquidation timelocks or contest windows.