Decentralized Finance (DeFi) has primarily revolved around Ethereum-based solutions, leaving Bitcoin’s massive capital untapped. While Bitcoin (BTC) has long been viewed as a “store of value,” its potential as a yield-bearing asset has been limited.
Enter Zest Protocol, an on-chain, open-source platform built to make Bitcoin productive and bring it into the DeFi world. Leveraging the Stacks Network, Zest Protocol enables decentralized borrowing and lending with native BTC. Let’s take a closer look at how Zest Protocol works and how its recent developments will shape the future of Bitcoin in DeFi.
What is Zest Protocol?
Zest Protocol is a DeFi protocol built to make Bitcoin assets productive. Before Zest, it was difficult for users on the Stacks Network and Bitcoin ecosystem to borrow against their assets or lend them out safely. Lenders and borrowers faced trust and counterparty risk issues, especially with centralized platforms handling Bitcoin loans. Additionally, lending $BTC typically required wrapping it into other tokens like wBTC, exposing users to unnecessary risks.
Zest solves these problems by creating a borrowing and lending ecosystem centered around Bitcoin, using Clarity smart contracts on the Stacks L2. The platform operates two separate lending and borrowing markets: the Bitcoin Market (set to launch in Q4 2024) and the Stacks Market (currently operational). Both markets allow users to borrow and lend assets such as $STX, $USDC, and native $BTC, all in a trustless, transparent environment.
Plus, with the upcoming launch of Zest Protocol Earn, a native $BTC yield product, users will soon be able to stake $BTC through $BTCz and earn trustless, on-chain returns powered directly by Bitcoin.
Built on the Stacks Network
Zest Protocol leverages the power of the Stacks Network, a Bitcoin layer-2 solution that enables dApps and smart contracts using Bitcoin’s security. Unlike other DeFi platforms that require wrapped tokens or centralized custodians, Stacks allows Zest to interact directly with native $BTC through Clarity smart contracts.
Stacks smart contracts read Bitcoin’s state from the Bitcoin blockchain, ensuring that Zest’s transactions are secure and transparent. This direct interaction between Stacks and Bitcoin provides a significant advantage over traditional DeFi platforms that use Ethereum-based solutions.
Through Stacks, Zest Protocol eliminates the need for centralized intermediaries, allowing users to retain full control over their $BTC while engaging in decentralized lending and borrowing.
Current Features
Stacks Market
Currently, Zest operates a Stacks Market that allows users to lend and borrow Stacks-native assets like $STX, $USDC, and stSTX. The Stacks Market is modeled on Aave v3, enabling perpetual loans and passive income for lenders. Once the Nakamoto upgrade hard fork is implemented, Zest will fully unlock its Bitcoin Market, allowing users to borrow and lend native $BTC safely and efficiently.
Upcoming Features
Bitcoin Market
This will be the $BTC lending and borrowing feature of Zest Protocol. When users deposit $BTC into Zest, it’s tokenized into sBTC on the Stacks layer, and this sBTC is held in Zest pool contracts. Users still interact directly with native $BTC on Bitcoin L1, and when withdrawing, Zest converts sBTC back to $BTC, sending it straight to the user’s Bitcoin wallet. Throughout this process, the equivalent amount of $BTC is securely held on the Bitcoin blockchain through a threshold-signature script managed by Stacks consensus. More information about this market will be announced when the Stacks Network Nakamoto upgrade is complete.
Zest Protocol Earn
This feature is designed to bring Bitcoin staking to the Stacks Network, leveraging advanced security features from Babylon Labs. The first pool under Zest Protocol Earn will allow users to stake their $BTC and receive a tokenized yield-bearing asset called BTCz. This pool aims to set a secure, risk-free rate for $BTC yield, something that’s been missing in the Bitcoin ecosystem. Unlike other staking solutions that rely on centralized custodians or third-party oracles, Zest Protocol Earn utilizes Stacks’ unique ability to read Bitcoin’s state directly, meaning that $BTC staking and yield generation are secured on-chain without intermediaries.
BTCz will be closely tied to sBTC, the Stacks version of Bitcoin, and will progressively decentralize toward a permissionless peg to yield $BTC. With BTCz, users will have a liquid, yield-bearing Bitcoin derivative that can also serve as collateral in other protocols. This innovative approach to $BTC staking and yield generation is expected to increase the adoption of sBTC and the Stacks ecosystem as a whole.
Recent Announcements
Zest Protocol has made significant strides in recent months. The platform recently secured a $3.5 million seed round to further its development, with backing from several notable investors. This funding will help Zest expand its Bitcoin Market and lending and borrowing services on the Stacks Network.
Zest Protocol raises $3.5m Seed round to redefine Bitcoin lending
Led by @drapervc, with participation from @BinanceLabs, @FlowTraders, @trustmachinesco, @goasymmetric and more 🤝 pic.twitter.com/L1PP6hmWN6
— Zest Protocol 🍊 (@ZestProtocol) May 13, 2024
Additionally, Zest announced its first native $BTC yield product, $BTCz (mentioned above), set to launch in Q4 2024. $BTCz represents a major milestone for the protocol, allowing users to earn real yield on their $BTC holdings in a trustless, transparent manner. The $BTCz product, developed in partnership with Babylon Labs, enhances Zest’s vision of building a vibrant lending ecosystem around Bitcoin.
1/ It's time to bring the best of @babylonlabs_io and @Stacks together!
Today, we're announcing Zest Protocol's first BTC yield product: BTCz
BTCz uses Babylon for yield, and Stacks for security. Read how 👇 pic.twitter.com/ZMvpV9V2Yl
— Zest Protocol 🍊 (@ZestProtocol) September 5, 2024
Final Thoughts
Zest Protocol’s approach to $BTC lending and borrowing is groundbreaking in the Bitcoin DeFi space. By offering Stacks network AND native $BTC lending and borrowing, plus $BTC staking, Zest is poised to become a go-to platform for Bitcoin holders looking to engage in DeFi activities. The trustless nature of Zest’s platform allows users to engage in DeFi with a higher level of security. Lenders no longer have to worry about counterparty risks, while borrowers can safely access liquidity without selling their $BTC. As more Bitcoin holders look for ways to make their $BTC productive, Zest’s native $BTC solutions have the potential to reshape the broader DeFi ecosystem.
Sources
This is a Contributor Post. Opinions expressed here are opinions of the Contributor. Influencive does not endorse or review brands mentioned; does not and cannot investigate relationships with brands, products, and people mentioned and is up to the Contributor to disclose. Contributors, amongst other accounts and articles may be professional fee-based.