# Zest Protocol Opens Capped Demo for Bitcoin-Backed USDC Loans

By Simon Yoon

Canonical URL: https://www.tokenpost.com/news/technology/24151
Published: 2026-09-25T13:35:28.000Z
Updated: 2026-09-25T13:35:28.000Z
Section: Technology

> Users can borrow USD Coin against native Bitcoin held in separate self-custodial Taproot vaults, with collateral capped at 0.001 BTC per wallet.

Zest Protocol launched a capped mainnet demo Sept. 23 that lets users borrow USD Coin (USDC) against native Bitcoin (BTC) without wrapping the asset or moving it to a custodian, separating Bitcoin custody from Ethereum-based lending.

Users deposit BTC into individual self-custodial Taproot vaults on the Bitcoin network. Ethereum smart contracts maintain the related collateral record and handle the borrowing position, while the BTC remains locked on Bitcoin.

The demo limits collateral to 0.001 BTC per wallet. That cap was described as approximately $86. Deposits are not pooled, and each position uses its own vault.

The Bitcoin spending paths permitted by a vault are signed when it is created. When a borrower repays the debt, the BTC is returned. If the position passes its liquidation threshold, only the amount required to settle the position may be transferred to a registered liquidator.

The structure addresses a common tradeoff in Bitcoin-backed lending. Wrapped BTC, bridges or custodians are often used to make Bitcoin available in applications on other networks. This design keeps the native asset on Bitcoin while Ethereum handles the USDC loan.

The release is a limited test with a per-wallet cap rather than an unrestricted production rollout. The demo uses pre-signed Bitcoin transactions, while full BitVM proof verification is planned for a later phase.

“Seeing real Bitcoin collateral working on mainnet, with the coins never leaving Bitcoin, is something I'm incredibly excited about,” said Tim Draper, founder of Draper Associates.

“Bitcoin holders should not have to choose between liquidity and custody,” said Tycho Onnasch, CEO of Zest Protocol.