Trustless, with caveats: Babylon’s big Bitcoin DeFi claim

Babylon Labs says it has built a system using BitVM3 that allows native Bitcoin to be used as trustless collateral for borrowing on Ethereum, but its trustless design raises questions.

A co-founder of Bitcoin infrastructure company, Babylon Labs, claims to have built a system that allows for native Bitcoin to be used as trustless collateral to borrow on the Ethereum blockchain.

In a Wednesday X post, Babylon Labs co-founder and Stanford University professor David Tse claimed Babylon built a proof-of-concept allowing for native Bitcoin (BTC) “to be used trustlessly as collateral to borrow on Ethereum for the first time.”

The comments follow Babylon’s release of a white paper in early August, outlining what it calls a Bitcoin trustless vault system. The system leverages the Bitcoin smart contract verification system BitVM3 to lock BTC in per-user vaults, where withdrawals (redemption or liquidation) are gated by cryptographic proofs of external smart contract state verified on Bitcoin.

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