Zest Protocol has launched a capped mainnet demo of what it calls Bitcoin Collateral Vaults, a system designed to let users borrow on EVM-compatible chains while keeping their Bitcoin on Bitcoin itself. The release is framed as a test of whether BTC can support cross-chain lending without being wrapped or moved into pooled custody.
According to the project, each vault is self-custodial and holds the Bitcoin of a single user on Bitcoin L1. Loans are then issued on another chain, such as Ethereum, based on a collateral record linked to that vault rather than by transferring the BTC away from its native chain.
Single-user vaults on Bitcoin
Zest’s design centers on one vault per depositor, with no pooled Bitcoin collateral. The protocol says that structure allows a user to post BTC as collateral while retaining a vault that remains on Bitcoin L1, even as the borrowing activity happens on an EVM chain.
In practice, a borrower can draw a loan against that vault, add more collateral later, or withdraw excess collateral if Bitcoin’s price increases. The system is also set up to allow partial liquidations, so that only the amount needed to cover the position is handled and the remaining BTC stays in or returns to the user’s vault.
Recovery and settlement model
The project says the vaults include a fallback if another chain becomes unavailable. In that case, a depositor can reclaim eligible Bitcoin after a timelock expires using only the user’s own key and vault data, without needing a signature from Zest.
For the current production phase, however, repayments and liquidations are not yet fully verified by Bitcoin-native logic alone. Independent guardians, whose identities were not disclosed in the source article, monitor settlements and confirm whether repayments or liquidations have occurred before payouts are finalized.
BitVM planned as the next verification layer
Zest says the guardian-based approach is intended as an interim step. The longer-term plan is to replace that role with BitVM-based verification on Bitcoin, shifting the system toward a more trust-minimized settlement process.
Under the design described by the project, challengers would be able to dispute claims by submitting zero-knowledge proofs. Zest said benchmarked on-chain costs for those disputes are projected to come in below $100, though that mechanism is still part of the planned future architecture rather than the launch configuration.
Caps remain until audits are completed
The rollout is intentionally limited. Zest said the mainnet demo is capped for now, and those caps are expected to remain in place until external audits are completed.
The project is entering a competitive area where multiple teams are trying to make Bitcoin usable in decentralized finance without relying on wrapped assets. Zest’s current distinction is not immediate full decentralization, but a staged model that starts with guardian oversight and aims to move later to BitVM verification. The next confirmed step is the completion of external audits, after which the protocol says it intends to lift caps and begin full production.
Source: beincrypto.com