Babylon Labs has unveiled a proof-of-concept for BitVM3, a system designed to use native Bitcoin as trustless collateral on the Ethereum network. This innovative approach involves locking Bitcoin in native vaults and verifying its state on Ethereum through cryptographic proofs, enabling borrowing without the need for a custodial bridge. The system utilizes an intermediate token, VaultBTC, to represent these vaults and interact with Ethereum lending protocols. Despite its potential, the system's reliance on whitelisted actors and external oracles for liquidation introduces some operational trust assumptions. Currently, the experimental system is in its early testing phase and has minimal liquidity, indicating that further development and testing are required before broader adoption.