Babylon Labs, a blockchain infrastructure company founded by Stanford researchers, has introduced trustless Bitcoin vaults, in a major step toward integrating Bitcoin into decentralized finance (DeFi).
Announced on August 6 via X, this innovation allows native Bitcoin (BTC) to be used in DeFi lending, stablecoins, perpetual futures, and liquid staking without custodians, bridges, or wrapped tokens.
As of August 2025, less than 1% of Bitcoin’s $2.28 trillion market cap is used in DeFi. Babylon is working to release this stranded capital and introduce Bitcoin to decentralized economies in a safe, self-custodied manner.
The vaults work by encrypting the unspent transaction outputs (UTXOs) of Bitcoin with cryptographic regulations. Users are required to provide zero-knowledge proofs (ZKPs) to access or redeem funds, and ZKPs can prove conditions in smart contracts without revealing any confidential information.
Babylon uses BitVM3, a native Bitcoin system based on ZKPs and garbled circuits. This ensures that Bitcoin never leaves the Bitcoin blockchain, but can be used as collateral on Ethereum, Cosmos, and other chains. If collateral value drops, liquidators can claim it by submitting valid cryptographic proofs, no intermediaries needed.
The vaults are directly linked to the $5 billion Bitcoin staking protocol of Babylon, which was launched in August 2024. The users are able to earn rewards, such as BABY tokens, without losing control over their BTC.
The roadmap of Babylon envisages EVM integration, multi-staking, and cross-chain Bitcoin liquidity layer by the beginning of 2026. The company will focus on turning Bitcoin into a productive asset, without sacrificing its founding principles of decentralization and self-custody.
Also Read: Flare Launches Luminite Wallet For New Users To Access DeFi
