Bitcoin (BTC) project Babylon has taken another step towards delivering a decentralized finance (DeFi) experience on its $5 billion staking protocol, similar to what is available in the broader crypto landscape.
The latest development involves the launch of trustless vaults, allowing BTC holders to deposit their tokens without depending on a centralized authority, as detailed in a new white paper shared with RialCenter.
In DeFi ecosystems, trustless vaults serve as a digital asset storage or management solution that eliminates the need for users to place their trust in a central authority. Instead, smart contracts ensure security and enforce the rules of the vault.
Babylon states that its vaults will enable bitcoin to be utilized as collateral in DeFi applications like lending and stablecoin issuance, in addition to the staking options offered by its protocol. Users can also earn yield on their BTC holdings by staking them to support proof-of-stake networks, receiving rewards in Babylon’s native token, BABY.
This initiative is part of the broader trend to leverage the immense value of bitcoin to drive DeFi activity across various blockchains.
With over 60% of the total cryptocurrency market cap, bitcoin surpasses the combined value of all other digital assets and presents a potentially more powerful source of blockchain-based activity than any other cryptocurrency.
Current bridges that allow bitcoin to be utilized on external blockchains depend on centralized third parties. Moreover, Bitcoin’s scripting language lacks the ability to create covenants— mechanisms that establish specific conditions for future fund usage— despite developers’ efforts. This limitation complicates the creation of trustless bridges.
Babylon aims to address this challenge by offering on-chain vaults, linking stored BTC to a specific smart contract protocol on an external chain.
This approach utilizes BitVM3, the latest iteration of BitVM, a framework for enabling smart contracts on Bitcoin. BitVM3 is designed to enhance the efficiency of its predecessor by moving most computational tasks off-chain using “garbled circuits,” making fraud proofs more compact on-chain.
The trustless bitcoin vaults are “programmable, and withdrawals are permitted only when a zero-knowledge proof of a specific smart contract state is verified on the Bitcoin chain,” Babylon explained in the paper’s abstract.
“Combined with suitable Bitcoin scripting for the vault, this removes the need for mutual trust among parties.”
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