Babylon has secured a $15 million investment from a16z Crypto through a purchase of its native BABY token. In the Dec. 7 announcement cited by the firm, the deal was presented as support for Babylon’s move beyond Bitcoin staking and into native BTC lending, with the broader goal of putting idle Bitcoin to work onchain without relying on bridges, wrapped assets, or custodians.
The bet centers on native Bitcoin collateral
Babylon started as a Bitcoin staking protocol built to let BTC holders earn yield without moving their coins off the Bitcoin network. It is now pushing into lending through an architecture it calls Trustless BTCVaults, designed to make Bitcoin usable as verifiable onchain collateral. The project’s pitch is narrow but important: keep Bitcoin native, keep the security model intact, and avoid the extra trust assumptions that come with exchange-issued or multisig-wrapped BTC.
To do that, Babylon says the system uses cryptographic methods including witness encryption and garbled circuits. The intended result is a way for Bitcoin to connect with DeFi while preserving its base-layer properties. a16z described this approach as a neutral alternative to the wrapped BTC structures that currently dominate much of decentralized finance.
Babylon wants idle BTC to move into credit markets
a16z framed the investment around Bitcoin’s limited role today. With more than $1.4 trillion in Bitcoin largely sitting idle, Babylon is trying to expand BTC beyond store-of-value use cases and into lending, credit, and other capital-efficient applications. The project argues that this can be done without introducing new counterparty risk, which has long been one of the main trade-offs for Bitcoin users entering DeFi.
Babylon was founded by Stanford professor David Tse and Fisher Yu. In its write-up, a16z pointed to Tse’s academic background in blockchain research and his role mentoring several well-known crypto founders and researchers. That emphasis puts the focus on the team’s technical credibility as much as on the product itself.
Earlier staking rounds drew more than $2 billion in TVL
The protocol has already shown signs of strong demand in its earlier staking phase. Previous staking caps brought in more than $2 billion in total value locked, with participation from institutional custodian BitGo and exchange partners including Kraken. Those figures gave Babylon an early proof point that users were willing to seek Bitcoin yield without transferring assets away from the Bitcoin network.
Development has shifted in recent months. Babylon is now positioning itself less as a yield-only staking venue and more as infrastructure for native Bitcoin lending. According to the source material, Babylon and Aave announced in early December 2025 that native Bitcoin would be used as collateral on Aave V4.
Aave V4 proposal points to native BTC borrowing and lending
The proposed integration would create Aave’s first Bitcoin-backed “Spoke”, allowing users to borrow and lend against BTC without wrapping it into ERC-20 tokens. The launch is expected around April 2026. If delivered on that timeline, the setup could open a new DeFi market anchored directly to Bitcoin’s base layer instead of to synthetic or wrapped versions of BTC.
a16z also said trustless native Bitcoin collateral could later be used in perpetual futures, stablecoins, and other financial primitives if adoption grows. For now, Babylon’s next test is more concrete: whether native BTC can function as usable onchain collateral at scale without giving up the security assumptions that Bitcoin holders want to preserve.