Bitcoin holders face a challenge: they want to borrow against their BTC without moving it off Bitcoin. With BitVM, this is possible, but current vault solutions leave room for improvement. Today, we're introducing the BOB Bitcoin Vaults Liquidation Engine - a breakthrough that makes native BTC collateral practical for lending protocols across any chain.

Check out the research paper on the Bitcoin Vaults Liquidation Engine here.

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The Liquidation Problem

Current Bitcoin vaults for DeFi lending have three limitations:

Pre-selected liquidators only. Most vault systems require liquidators to be whitelisted in advance. This artificially limits liquidity and creates centralization risks.

All-or-nothing liquidations. If a depositor uses a single BTC vault for their lending position, liquidations are all-or-nothing - meaning partial liquidations aren’t possible, and the entire BTC position can be wiped out once it goes underwater. Most lending protocols now support partial liquidations that only sell enough collateral to restore a safe loan-to-value (LTV) ratio.

Days-long settlement times. Existing liquidation mechanisms can take days to complete, locking up liquidator capital and creating cascading risks during volatile markets. In fast-moving conditions, this delay can mean the difference between a healthy market and a death spiral.

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How the Bitcoin Vaults Liquidation Engine Changes Everything

The Bitcoin Vaults Liquidation Engine solves these problems while maintaining the Bitcoin vault core security guarantees. It enables native BTC to be used as collateral for borrowing stablecoins on any chain while keeping the BTC on Bitcoin.

Here are the key innovations Bitcoin Vaults Liquidation Engine introduces: 

Open Liquidations

We remove the need for pre-approved liquidators so that anyone can take part in liquidations. This means lending protocols no longer have to rely on a specific group of trusted participants being available or having enough liquidity. 

Partial Liquidations

The engine supports partial liquidations, meaning only enough collateral to restore loan health is liquidated. 

Fast Liquidations

We can shorten the challenge period from several days to 10-60 minutes. Liquidators can deploy capital efficiently, and the system responds quickly to market volatility.

Atomic Liquidations

With this setup, liquidations can also be atomic - meaning liquidators can repay a loan and instantly claim the underlying collateral in a single transaction, just like in traditional DeFi. 

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How It Works

Instead of sending BTC directly to specific liquidator addresses, the system routes liquidations through a bridge. This allows multiple liquidators to work together, while smart contracts automatically distribute collateral based on how much each participant helped repay the loan.

Depositors remain trust-minimized for withdrawals and can always get their BTC back if their loan is repaid. 

Extensions offer trade-offs - faster and partial liquidations may require some additional trust in operators or bridges, but this is always opt-in. Conservative users can stick with fully trustless (but slower) mechanisms. Opportunity-seeking users can opt into speed.

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The Market Opportunity

The numbers tell the story. About 50% of wBTC on Ethereum is already used in lending protocols, proving enormous demand for BTC-collateralized borrowing. But this represents only wrapped Bitcoin, and only on Ethereum.

The real opportunity is unlocking native BTC as collateral across all chains. So far, Bitcoin has remained largely isolated from DeFi innovation - not because holders don't want yield or borrowing options, but because the infrastructure wasn't ready.  Bitcoin holders want to borrow against their BTC without moving it off Bitcoin. The Bitcoin Vaults Liquidation Engine makes this possible.

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The Bottom Line

The Bitcoin Vaults Liquidation Engine makes Bitcoin vaults actually usable for lending protocols. By solving the fundamental liquidation challenges, we're unlocking native BTC as collateral across all chains. This allows billions of dollars in idle Bitcoin to be used in decentralized finance - without giving up self-custody.

Read the research paper on the Bitcoin Vaults Liquidation Engine here.