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

Stanford professor David Tse has raised $15 million for Babylon, a startup that is developing a decentralized protocol called BTCVaults. The funding comes from a16z crypto, the venture capital arm of Andreessen Horowitz. The protocol is designed to allow Bitcoin holders to collateralize their holdings without surrendering control to a third party.

The traditional process of collateralizing Bitcoin involves intermediaries like stablecoin issuers or exchanges, which often require users to transfer control of their keys. Babylon's protocol eliminates the need for third-party custodians, enabling users to directly collateralize their Bitcoin for use in lending protocols like Aave.

Babylon plans to integrate BTCVaults with Aave in the second quarter of 2026. While the company does not currently generate revenue, it aims to monetize its technology after the Aave integration. The startup currently employs over 40 individuals and has no CEO, with Tse serving as research scientist and co-founder Fisher Yu as CTO.

Why Did This Happen?

David Tse, a Stanford professor, started Babylon to address the limitations of current Bitcoin collateralization services. Tse argued that users who send Bitcoin to third parties often lose control of their keys and face risks associated with centralized custodians. The startup aims to offer a more direct and secure alternative by leveraging decentralized protocols.

Babylon's approach aligns with a broader trend of decentralizing financial infrastructure, particularly in the DeFi sector. As institutional interest in crypto grows, so does the demand for innovative solutions that reduce reliance on centralized entities.

How Does This Protocol Differ from Current Services?

Unlike existing platforms such as Coinbase or Tether, Babylon's protocol allows users to collateralize Bitcoin without transferring ownership of the asset. This is a significant departure from the traditional model, where users must surrender control of their Bitcoin to a third party to access lending or stablecoin services.

By maintaining control of their private keys, users reduce the risk of theft or misuse by intermediaries. The BTCVaults protocol is also designed to be more transparent and interoperable with other DeFi platforms, including Aave. This could enhance the overall efficiency and security of the DeFi ecosystem.

What Are Analysts Watching Next?

Analysts are closely watching how Babylon integrates BTCVaults with Aave in Q2 2026. The success of this integration could determine whether the protocol gains traction in the DeFi space. If the project proves scalable and secure, it may attract more institutional and retail users looking to collateralize Bitcoin without relying on traditional platforms.

Additionally, observers are tracking Babylon's ability to secure further funding and partnerships as it moves into revenue-generating phases. The company's current valuation and growth strategy are also points of interest, particularly given Tse's academic background and the backing from a16z crypto.

Investors and developers will also be watching how regulatory developments in 2026 affect decentralized protocols like BTCVaults. As the DeFi sector continues to evolve, regulatory clarity will play a key role in shaping the future of Bitcoin-based collateral solutions.