Xinshu Dong - Catalyzing BTCFi with Trustless Bitcoin Vault - TOKEN2049 Singapore 2025

I'm Shing Shu here. I'm very excited to share with you the latest technology we are building at Babylon Labs which will enable native bitcoins to be used trustlessly in D5 applications. So first let us address the terminologies, the jarens, the nomenclature. You know sometimes we say BTC sometimes we talk about Bitcoin or BDCD or whatever but among all these terminologies there is a very significant overlap in terms of what it refers to. I think all of them refer to the evolution to bring Bitcoin into the DeFi world.

You know why? Because the DeFi world is very exciting. We have different kinds of activities happening in DeFi. We have staking, lending, trading of different kinds of instruments and assets, right? Why not we bring Bitcoin, the largest asset on the largest blockchain to the rest of the crypto economy?

A bit of a reality check though, if you look at today, how are bitcoins used in different DeFi applications, right? Largely speaking, they have to go through some sort of bridges. you know whether this is WBDC or this is about Coinbase BDC or more recently there are also like BDC LST projects but you can see that the amount of BDC's that have been used in D5 today via these bridges are relatively small right especially if you look at the percentage they are less than 1% of the total BDC supply because people have been thinking about you know bridging all the time when they think about bringing bitcoins to different applications while on the other hand if you really think harder about it bridging is a means is a means to an end but it's not the goal itself and precisely because I think bridging sometimes bring additional trust assumptions sometimes it goes against the ethos upheld by many people in the bitcoin community right because in bitcoin not your keys not your coins while usually with bridging that's not the case. Now if bridging is not the goal right in making Bitcoin really used in D5 applications then what is the goal? I think the goal is really to allow native bitcoins to participate in D5 but trustlessly right.

What do I mean by trustlessly? It means that when Bitcoin holders put their Bitcoin to use in different DeFi applications, as long as they follow the protocols, they should be able to redeem their new Bitcoin, get them back, right? That's very important for Bitcoin holders because some of them really treasure their Bitcoin. They don't want their bitcoins to be lost. How do we achieve that?

So, this is something we're developing uh called trustless bitcoin vaults. But before we go in uh go deeper into how Bitcoin trust list VS work, let's take a a case study of the day. Trustless bitcoin sticking. So what is uh trustless bitcoin sticking? This is the technology that has been developed by Babylon.

So it's for the first time for bitcoins to be staked to secure different proof of stake chains in a very trustless manner. That means today you can already do that. Bitcoins can be locked on the bitcoin chain without bridging without wrapping. It can be used to secure different chains. The first chain being secured is Babylon Genesis.

So this is a quick snapshot of where we are with translates Bitcoin sticking enabled by Babylon. So we have about less than slightly less than 7 billion USD worth of Bitcoin natively staked on Bitcoin. As I mentioned, it's not it's not wrapped. It's not breached. It's securing a blockchain.

It can actually technically be used to secure many other blockchains as well. So this quite exciting, isn't it? So in a few months time, Babylon has become the second largest native Bitcoin protocol. Now have a guess what is the largest native Bitcoin protocol. That is Bitcoin itself, right?

So 7 billion doesn't sound like a huge number but within a very short amount of time it demonstrates that trustless protocols to use Bitcoin has a very strong demand. Now if we go a little further if we look at how Bitcoin sticking works through the lens of trustless vault right here is the picture. So in the middle you see there's a vault. Okay, technically speaking, this vault is a taproot script on Bitcoin chain. It's a UTXO governed by the logic programmed in Bitcoin script.

Now, the staker can lock her Bitcoin in the vault with a full confidence that there are only two ways her Bitcoin can be spent. The first path is a happy path. That means after some time this sticker can go back and unstake and redeem the original bitcoin. So everyone is happy. Of course there are some additional incentive for that because this sticker by putting the BDC uh in the vault uh she's securing she's helping secure some of the chance she's going to get some staking rewards.

And the other path is the so-called unhappy path because during the process of staking the staker has to delegate a bitcoin stake to one of the node operators and these node operators are expected to perform their jobs well uh to secure different chains. What if they misbehave right? If they misbehave there will be evidence that will be submitted to the vault such that a portion of the bitcoin stake will be slashed. slash means it will be burned, right? So, so in in a sense, Bitcoin sticking is already an embodiment of trustless Bitcoin vault.

So, the next step is really to generalize this idea. You know, Bitcoin sticking is mostly for security use cases, but what about other use cases, right? What about lending? Lending by far is still the largest D5 application in terms of TVL. So let's look at landing.

Can we apply a similar uh schema into lending with trustless fault? So here's how it works. Now we have two rows. One is a borrower. We call him Bob.

The other is a lender. We call him Larry. Now Bob has Bitcoin. And Bob wants to borrow USDC against the Bitcoin as collateral. How he does this is that he will lock the Bitcoin in the vault.

Again, as I mentioned, the vault is a script on the Bitcoin chain. There's no wrapping, right? There's no bridging and because of that, uh, Larry can certainly verify that the Bitcoin has been properly locked. Then Larry can lend USDC, for example, to Bob. Now, let's look at the two outcomes, two possible outcomes.

What's the happy path? The happy path is that everything is rosy. the Bitcoin price, you know, hasn't dropped much because that's a collateral. It's important the price is stable. Now Bob, you know, can go back and repay the loan in USDC and redeem the original native BDC.

So everyone is happy. Of course, Bob will pay a bit of interest to Larry. So Larry is happy as well. Now let's look at the unhappy path. So what if BDC price drops too fast and Bob does nothing about it?

Okay, now Larry starts to worry because you know if the BDC price keeps dropping maybe it's not going to be able to cover the loan the USDC loan Larry has given to Bob right so if Bitcoin price drops below a certain threshold Larry is allowed to come in and pay back the US uh sorry and liquidate uh the V to take the BDC and maybe Larry will sell it to cover the loan uh Larry has already provided to Bob. Right? So that's unhappy bath. I mean it's certainly unhappy for Bob. It's a little bit unhappy for Larry as well.

But you can see that there are two uh key features here that make this use case possible with trustless bitcoin vault without bridging. Right? The first property is that the withdrawal conditions whether this is about redemption under the happy scenarios or this is about liquidation under the slightly unhappy scenarios. So such withdrawal conditions need to be specified on Bitcoin trustlessly. Right?

Technically speaking, they are programmed in Bitcoin scripts. Now the second feature that is also very important is that uh such specific conditions that will trigger one of the specific spending conditions can be verified on Bitcoin trustlessly as well. Right? It cannot be like someone will hold a special key when this guy you know feels the right time you use a key to unlock one of the spending conditions to spend someone's BDC right that is not the trustless way of dealing with such a such a use case right so such things has to be verified on the bitcoin chain itself it was not possible until very recently with a bitm technology right we don't have time to go into the technical details of bitvm but at the high level bitm allows um results of different computation to be verified in an optimistic manner on the bitcoin itself right so that's also the backbone of the uh uh backbone technology of bitcoin trustless sport so we have published a white paper that details exactly how trustless bdc vaults work and we also try to illustrate how different DeFi applications can integrate with trustless bitcoin boards to introduce native BDC as collateral into their applications without bridging without wrapping without having to issue any new token in a very trustless manner. So feel free to go to Bablon Labs website and you know check out more details.

So in addition to lending, I think there are a few other D5 use cases that could naturally adopt trust list Bitcoin boards. So one is native Bitcoin backed stable coin. Imagine something like make a dollar or sky but instead of being backed by ETH or USDC can be backed by native Bitcoin again without wrapping or some of the derivative stacks uh that can take BDC native BDC as a collateral and then BDC will be settled according to presp specified rules. So I think there there's a lot of design space to explore um for different D5 applications to really benefit from trustless BDC V so that they can take in native BDC into their applications right to to to capture the um the the vision of this uh translate BC vault. The reality today is that uh bitcoins can only enter different applications on different smart contract chains via very limited very narrow channels and there seems to be a lot of reluctancy for bitcoin holders to put a lot more BDC into these channels.

While the new vision enabled by trust list Bitcoin bot is a crypto economy where any smart contract application on any smart contract chain will be able to leverage this primitive so that native bitcoins can really freely flow into these applications and be used there. I think this is a huge sea of new opportunities um for the entire D5 world. So we are currently uh looking forward to speaking with uh different D5 application developers and different chains to bring this technology uh to to chains and applications. So if you have any questions or if you have any thoughts of collaboration feel free to reach out to us. With that I thank you very much.