Babylon announced that it has raised $15 million from a16z crypto to develop Babylon Trustless BTCVaults, an infrastructure system designed to let native Bitcoin be used as collateral across on-chain financial applications without relying on wrapping, custodians, or intermediaries.
The company is positioning BTCVaults as an answer to what it describes as a growing gap between Bitcoin’s increasing acceptance as collateral in traditional, offchain settings and the limited ways Bitcoin can be used natively in onchain environments. Babylon said that less than 1% of Bitcoin is currently wrapped for onchain use, while a significant portion of BTC remains “idle” because many existing approaches require holders to relinquish custody or convert the asset into a representation on another chain.
Babylon’s BTCVaults are intended to keep Bitcoin locked on the Bitcoin base layer while allowing external applications to verify that collateral is in place and to enforce collateralization conditions, including unlock or liquidation rules. Babylon said the system relies on cryptographic mechanisms rather than discretionary control, and that the underlying design uses witness encryption and garbled circuits to enable Bitcoin to efficiently verify zero-knowledge proofs.
In its announcement, Babylon framed the effort as a way to preserve Bitcoin’s self-custody and trustlessness properties while expanding its utility for borrowing, lending, stablecoins, insurance, credit issuance, and structured products. The company also said the BTCVault design could reduce counterparty exposure and operational complexity for institutions by avoiding asset transformation, which it said can introduce tax, compliance, and custody considerations in some jurisdictions.
Babylon added that the rollout of BTCVaults creates new potential utility surfaces for its BABY token, describing an evolving economic design that could support coordination and participation as integrations, vault providers, and applications develop around the system.
KEY QUOTE:
“Today, we are pleased to share that a16z crypto is backing Babylon in order to support the development and scaling of Babylon Trustless BTCVaults, a new infrastructure that enables native Bitcoin to serve as collateral across on-chain financial systems.” “Our mission is to enable Bitcoin to serve as productive, programmable, native collateral without compromising its core principles.”
David Tse, Babylon founder
