Babylon Labs Secures $15M From a16z to Turn Native Bitcoin Into trustless Onchain Collateral

Babylon Labs has raised $15 million from a16z crypto to build infrastructure that allows native Bitcoin to be used as collateral without custodians or wrapped tokens. The funding will support the development of Babylon Trustless Bitcoin Vaults, known as BTCVaults, which are designed to let bitcoin remain on its own blockchain while being verifiably locked for use in onchain financial applications.

The investment marks the first time a major U.S. venture firm has publicly backed Babylon’s effort to turn bitcoin into productive collateral without changing its underlying form. According to Babylon, the new capital will go directly toward scaling BTCVaults and expanding the technical systems that support them.

This funding brings Babylon’s total disclosed funding since 2023 to $103 million, following an $18 million Series A and a $70 million strategic round led by Paradigm.

Why Did a16z Invest in Babylon Labs?

a16z crypto said its investment reflects a belief that bitcoin is increasingly being treated as a global collateral asset and that existing infrastructure does not support that role well.

In a joint statement, a16z crypto partners Guy Wuollet and Elizabeth Harkavy confirmed that the firm made a direct purchase of Babylon’s native token, BABY, as part of the $15 million investment. They described Babylon’s work as focused on enabling bitcoin to function as collateral for credit and other financial uses without giving up its core security properties.

Babylon said it will also rely on a16z for strategic guidance, especially around building foundational infrastructure that can meet institutional expectations.

What Problem Is Babylon Trying To Solve?

Bitcoin is widely held, but it is rarely used in onchain finance.

According to Babylon and its co-founder David Tse, less than 1% of bitcoin supply is currently wrapped for use in decentralized applications. At the same time, more than $1.4 trillion worth of bitcoin sits idle because most existing models require users to hand over custody or convert BTC into a synthetic asset.

Today’s common approaches include:

• Custodial lending, where users deposit bitcoin with a centralized provider
• Wrapped bitcoin models, where BTC is locked and reissued as a different token on another chain

Both approaches work, but they introduce trade-offs that matter more as adoption grows.

Custodial systems require users and institutions to trust an intermediary. Wrapped assets often involve legal, tax, and compliance considerations, since converting BTC into a different representation may be treated as a disposition of the original asset in some jurisdictions.

Babylon’s goal is to remove those trade-offs.

How Do Babylon Trustless Bitcoin Vaults Work?

Babylon Trustless Bitcoin Vaults are designed to let bitcoin be locked on the Bitcoin base layer while remaining verifiable to external systems.

A BTCVault anchors bitcoin directly on Bitcoin. External applications can then cryptographically verify that the BTC is still locked, enforce collateral rules, and trigger unlock or liquidation events without relying on a custodian.

Key properties of BTCVaults include:

• Bitcoin remains on the Bitcoin blockchain
• Users keep control of their private keys
• The asset is not wrapped or transformed
• Rules are enforced through cryptography, not discretion

Babylon uses witness encryption and garbled circuits to make this possible. These tools allow Bitcoin to efficiently verify zero-knowledge proofs, which confirm that certain conditions are met without revealing sensitive data.

This approach allows bitcoin to act as collateral while preserving the trustless nature that defines the network.

Why Native Bitcoin Collateral Matters

Bitcoin is increasingly accepted in traditional finance.

The U.S. Commodity Futures Trading Commission recently expanded its list of acceptable derivatives collateral to include bitcoin. Major banks and trading firms already offer bitcoin-backed credit products. Asset managers now treat bitcoin as part of long-term capital strategy rather than a short-term trade.

At the consumer level, infrastructure is also changing. MetaMask recently added native bitcoin support. U.S. spot Bitcoin ETFs now manage more than $120 billion in assets, according to Bloomberg Intelligence.

Despite this momentum, most onchain systems still cannot use native bitcoin directly.

BTCVaults aim to bridge that gap by making bitcoin usable across:

• Lending and borrowing markets
• Stablecoin issuance
• Insurance and credit products
• Structured financial instruments

All without requiring custody transfer or wrapped representations.

How BTCVaults Differ From Wrapped Bitcoin

Wrapped bitcoin systems rely on locking BTC and issuing a substitute token on another blockchain. That token can then be used in smart contracts, but the original bitcoin is no longer directly involved.

BTCVaults take a different approach.

Instead of issuing a replacement token, Babylon allows external systems to verify the state of bitcoin on Bitcoin itself. The bitcoin never leaves the base layer, and no synthetic asset is created.

This design reduces:

• Counterparty risk
• Operational complexity
• Regulatory ambiguity

Many regulated entities are cautious about asset transformation and custody chains. A system that keeps bitcoin native while still enabling financial use is easier to evaluate and integrate.

What Role Does The BABY Token Play?

Babylon said BTCVaults introduce new use cases for its native token, BABY.

As vault providers, applications, and integrations grow around BTCVaults, BABY is expected to support coordination and participation across the ecosystem. The company said the economic design is still under active development, but the vault infrastructure creates the base layer for BABY to have functional roles.

These roles may include:

• Protocol coordination
• Incentives for participation
• Support for future value capture mechanisms

a16z confirmed that its investment involved purchasing BABY directly, showing confidence in the token’s role within the protocol rather than a purely equity-based bet.

How Does This Fit Into Broader Bitcoin Adoption?

Bitcoin’s role in finance has expanded, but the underlying infrastructure has lagged.

While ETFs, custodial lending, and derivatives have grown quickly, trustless onchain systems have not kept pace. Most bitcoin remains passive because using it productively often requires giving up the properties that made it valuable.

Babylon’s approach aligns with a broader trend toward verifiable systems that reduce reliance on trust.

Examples of this trend include:

• Tokenized money market funds using blockchain settlement
• Onchain collateral verification for lending markets
• Increased use of zero-knowledge proofs in financial systems

BTCVaults aim to extend these ideas to bitcoin itself.

How Will The New Funding Be Used?

Co-founder David Tse said the $15 million will directly fund the buildout of BTCVaults.

The focus areas include:

• Scaling the vault infrastructure
• Improving verification mechanisms
• Supporting integrations with financial applications
• Expanding the role of BTCVaults across use cases

Babylon emphasized that the work is focused on infrastructure, not consumer-facing products. The goal is to provide a base layer that others can build on.

Conclusion

Babylon Labs’ $15 million raise from a16z crypto supports the development of Trustless Bitcoin Vaults, an infrastructure system that allows native bitcoin to be used as collateral without custodians or wrapping. BTCVaults keep bitcoin on its base layer, preserve user custody, and rely on cryptographic verification rather than trust. 

The funding strengthens Babylon’s ability to scale this infrastructure and expands the functional role of the BABY token. Together, these components aim to make bitcoin usable as collateral across onchain and traditional financial systems while maintaining its core security properties.

Resources

1. Blog article by Babylon: Building the Future of Native Bitcoin Collateral with a16z crypto’s Support

2. Report by CoinDesk: Babylon Labs raises $15 million from a16z crypto to develop Bitcoin collateral infrastructure

3. Report by The Block: Bitcoin staking protocol Babylon raises $18 million in Series A funding

4. Press release by Babylon: Babylon Completes $70M Raise Led by Paradigm to Advance Trustless Bitcoin Staking