Babylon Labs, co-founded by David Tse, has created a system using Bitcoin as trustless collateral for loans on Ethereum. It leverages the BitVM3 verification model, allowing users to lock BTC without a central custodian. Currently, the protocol has minimal liquidity, with just 14 USDC.
Despite its innovative design, the structure raises questions regarding trust assumptions related to liquidations, which rely on price oracles. Babylon is aiming to eliminate traditional trust issues in borrowing, but current liquidity limitations highlight the need for further development.
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