#baby $BABY @BabylonLabs_io
A question came up in a testnet Discord that nobody answered cleanly: if native Bitcoin never leaves the user's control, what actually gets liquidated when the loan goes underwater.
That's the part of Trustless Bitcoin Vaults worth sitting with longer than the marketing line. Self-custodial and trustless sound like pure upside, your keys, your Bitcoin, no bridge, no wrapped token. But lending against collateral only works if a lender can seize that collateral on default. Somewhere in the system, someone or something needs enforceable claim over BTC the borrower technically still holds. That's not a small design detail, it's the entire mechanism a borrowing product lives or dies on.
Babylon's answer is presumably built into TBV's vault logic itself rather than a custodian, which is the actual innovation here, not the absence of wrapping. Removing bridges is the easy headline. Making liquidation enforceable without custody is the hard engineering problem underneath it.
Self-critique: I don't have visibility into how robust that mechanism is under real market stress, testnet conditions rarely replicate a fast BTC drawdown. That's exactly why testnet exists, and exactly the part I'd want proven before calling this trustless in practice, not just in design.
A question came up in a testnet Discord that nobody answered cleanly: if native Bitcoin never leaves the user's control, what actually gets liquidated when the loan goes underwater.
That's the part of Trustless Bitcoin Vaults worth sitting with longer than the marketing line. Self-custodial and trustless sound like pure upside, your keys, your Bitcoin, no bridge, no wrapped token. But lending against collateral only works if a lender can seize that collateral on default. Somewhere in the system, someone or something needs enforceable claim over BTC the borrower technically still holds. That's not a small design detail, it's the entire mechanism a borrowing product lives or dies on.
Babylon's answer is presumably built into TBV's vault logic itself rather than a custodian, which is the actual innovation here, not the absence of wrapping. Removing bridges is the easy headline. Making liquidation enforceable without custody is the hard engineering problem underneath it.
Self-critique: I don't have visibility into how robust that mechanism is under real market stress, testnet conditions rarely replicate a fast BTC drawdown. That's exactly why testnet exists, and exactly the part I'd want proven before calling this trustless in practice, not just in design.