Stanford Professor Raises $15 Million for Babylon, a Decentralized Protocol to Turn Bitcoin into Collateral

A Stanford professor has raised $15 million for Babylon, a startup developing a decentralized protocol that enables users to directly collateralize Bitcoin without relying on intermediaries. Babylon's co-founder, David Tse, envisions a system where Bitcoin holders can generate yield by using their holdings as collateral for loans without giving up control of their private keys. The funding was led by Andreessen Horowitz's crypto arm, a16z crypto, though the company did not disclose Babylon's valuation.

The protocol, known as BTCVaults, allows users to collateralize their Bitcoin in a decentralized manner, bypassing the need for centralized platforms like Coinbase or Tether. In traditional models, Bitcoin owners must surrender control of their keys to third-party platforms that issue stablecoins or wrapped BTC to be used in lending protocols.

Babylon's approach eliminates this middle step, providing users with a direct method to access yield from their Bitcoin holdings.

David Tse, a Stanford professor with over a decade of experience, co-founded Babylon in 2021 with Fisher Yu. Tse explained that he started the company to translate academic research into practical applications, emphasizing the difference between research papers and real-world usability. The company does not have a CEO and operates with a research scientist and CTO structure.

Compared to centralized services, Babylon's decentralized model offers a different risk and control dynamic. Tse views the startup's main competition as services like Coinbase, Kraken, and Tether, which currently dominate the market for Bitcoin collateralization. By removing intermediaries, Babylon aims to create a more transparent and efficient system for users to access yield from their Bitcoin holdings.

Babylon has no current revenue but plans to integrate with the lending protocol Aave in the second quarter of 2026. The company has over 40 employees and has already established a research-focused culture centered on blockchain innovation. Tse emphasized the importance of this integration, which will allow Babylon to begin generating revenue and expanding its offerings to a broader user base.

Why Did This Happen?

The $15 million funding round highlights growing investor interest in decentralized finance (DeFi) solutions that reduce reliance on traditional intermediaries. With a16z crypto leading the investment, Babylon is positioned to compete with established players in the Bitcoin collateral market. This move aligns with broader trends in the DeFi space, where startups are increasingly seeking to offer decentralized alternatives to centralized services.

The rise of Babylon also reflects a shift in how Bitcoin holders approach yield generation. As the market evolves, users are seeking more control and transparency in how their assets are utilized. Babylon's model offers a new approach that aligns with these preferences while leveraging Stanford's academic and technological resources.

What Are Analysts Watching Next?

Analysts are closely watching Babylon's planned integration with Aave. This partnership could determine the startup's ability to scale and generate revenue in a competitive market. The success of BTCVaults will depend on user adoption and the efficiency of the decentralized collateralization process.

Investors are also evaluating how Babylon's model compares to traditional options. While decentralized platforms offer transparency, they also come with unique challenges, such as liquidity and user experience. Analysts will be tracking how Babylon addresses these issues as it moves toward launching its revenue-generating services.

The broader implications for the DeFi market are also under scrutiny. If Babylon can successfully implement its decentralized model, it could influence how other DeFi projects approach collateralization and yield generation. This development could contribute to a more diverse and competitive DeFi landscape in the coming months.

What Is the Future Outlook?

Babylon's future depends on its ability to attract users and integrate with major lending protocols. The company has a strong academic and technological foundation, which could give it an edge in the DeFi space. However, it will need to navigate the challenges of user onboarding and liquidity to ensure long-term success.

The market for Bitcoin collateralization is expected to grow as more users seek yield from their holdings. With competition intensifying, Babylon's decentralized approach could differentiate it from traditional platforms. The company's success will also depend on regulatory developments and the overall health of the Bitcoin market.

Investors and analysts will continue to monitor Babylon's progress as it moves toward launching revenue-generating services. The company's ability to execute on its vision and deliver a user-friendly experience will be key factors in its long-term viability. If successful, Babylon could play a significant role in the evolution of DeFi and Bitcoin collateralization.