Stacks’ Zest Protocol Launches Bitcoin Collateral Vaults, Extending BTC Lending to Bitcoin Layer 1
San Francisco, United States, May 6th, 2026, Chainwire
Self-custodial vaults let users borrow stablecoins against BTC that never leaves the Bitcoin chain. Unveiled Wednesday at Draper Summit 2026.
Zest Protocol, on Wednesday, introduced Bitcoin Collateral Vaults, a self-custodial lending product that lets Bitcoin holders borrow stablecoins without moving their BTC off the Bitcoin base layer. The launch, announced at the annual Draper Summit hosted by venture investor Tim Draper, extends the protocol’s reach from Stacks (STX), the Bitcoin layer where it has operated since 2024, to Bitcoin Layer 1.
Zest is the largest Bitcoin-native finance protocol on Stacks, with more than 800 BTC deposited and a peak total value locked above $100 million. The new product applies the lending model the team has run on Stacks for two years directly to the Bitcoin chain.
Bitcoin Collateral Vaults work by locking BTC in a self-custodial vault on Bitcoin. The vault’s spending conditions are tied to the state of a smart contract on a destination chain, where users borrow stablecoins from established DeFi liquidity pools. The collateral remains on Bitcoin throughout, and the user retains custody unless the position is liquidated.
The product becomes viable now because of recent progress in BitVM, a system for verifying smart contract state on Bitcoin. The on-chain cost of verifying a zero-knowledge proof has fallen from upwards of $14,000 under BitVM2 to under $100 in 2025, according to Zest. Those economics, combined with the protocol’s two-year operating record on Stacks, are what make a self-custodial Bitcoin lending market practical at scale, the team said.
Zest plans a phased rollout, starting with a pre-signed transaction model and transitioning to full BitVM verification as the supporting infrastructure matures.
Founder Tycho Onnasch and his team were early users of Aave during DeFi Summer and concluded that wrapped BTC would never unlock Bitcoin’s potential as collateral. They spun the company out as Zest Protocol in 2023 with backing from Draper Associates and YZi Labs, and built it into the largest Bitcoin lending market on a Bitcoin layer. The Stacks-based market has processed more than 1,500 liquidations with no bad debt.
“Bitcoin holders should not have to choose between liquidity and custody,” Onnasch said. “Institutions have solved this through triparty arrangements, and Bitcoin Collateral Vaults bring that setup on-chain, without intermediaries. We have a working mainnet prototype and are accelerating toward deployment.”
Tim Draper, founder of Draper Associates, called Bitcoin “the most important asset of our generation” and said his firm backed Zest because the team recognized early that Bitcoin needed dedicated lending infrastructure. “They have already won on Bitcoin Layer 2s. Now they are taking it to Bitcoin L1, and they will win there too,” Draper said.
Muneeb Ali, founder of Stacks, said Zest’s track record validates the broader thesis that Bitcoin can support a full on-chain financial system. “Zest’s team has a proven track record of running a real BTC lending market,” Ali said. “Bitcoin Collateral Vaults on L1 are an exciting new development, and Zest is well positioned to be a market leader.”
Zest is backed by Draper Associates, YZi Labs, Trust Machines, and Muneeb Ali.
About Zest Protocol
Zest Protocol is a Bitcoin lending platform. Live since 2024, it is the largest DeFi protocol on Stacks, with over 800 BTC deposited, a peak TVL above $100 million, and more than 1,500 liquidations executed without bad debt. The company is backed by Draper Associates, YZi Labs, Trust Machines, and Muneeb Ali. More at zestprotocol.com.
About Stacks
Stacks is the leading Bitcoin layer by BTC deployed, providing infrastructure for Bitcoin-native financial applications including lending, borrowing, and autonomous AI agents, all settled with Bitcoin finality. The network’s native asset, STX, secures the chain and, under the forthcoming PoX-5 upgrade, will pair with BTC to enable native Bitcoin staking yield. More at stacks.co.
About Draper Summit
Draper Summit is the annual private gathering hosted by Draper Associates in San Francisco, California, bringing together founders, investors, and technologists across crypto, AI, and frontier technology.