Babylon Teams Up with a16z crypto to Build the Future of Native Bitcoin Collateralization

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Today a16z crypto officially announced its support for the Babylon project to jointly advance its innovative infrastructure — the trust-minimized Bitcoin vault's development and scalability. The technology aims to empower native Bitcoin to be used as a collateral asset in on-chain financial systems. In addition to $15 million in funding support, we look forward to leveraging a16z crypto's expertise in strategic guidance and its deep experience in investing in foundational technologies to collectively drive the realization of this vision.

Author: David Tse

Today, we are excited to announce that a16z crypto is officially supporting the Babylon project to jointly advance its innovative infrastructure — the development and scaling of a trustless Bitcoin vault. This technology aims to empower native Bitcoin to be used as a collateral asset in on-chain financial systems. In addition to $15 million in funding support, we are looking forward to leveraging a16z crypto's expertise in strategic guidance and its deep experience in investing in foundational technologies to collectively drive the realization of this vision.

a16z crypto has a long history of investing in defining the race track-type infrastructure. This collaboration is based on a shared belief: Bitcoin is gradually becoming a new global collateral asset, and a key step in achieving this vision is to build a trustless infrastructure that allows Bitcoin to fully exercise its financial functions while maintaining its fundamental properties.

The U.S. Commodity Futures Trading Commission CFTC (https://www.cftc.gov) recently included Bitcoin in the acceptable range of derivative collateral, marking a deepening trend of financial institutions adopting Bitcoin in their transactions. Currently, several major banks and trading institutions have launched Bitcoin-based credit products, while large fund management institutions and asset management companies are increasingly incorporating Bitcoin into their long-term capital allocation strategies. At the same time, consumer-oriented infrastructure continues to upgrade, for example, MetaMask recently announced support for native Bitcoin functionality. According to Bloomberg industry research data, the managed assets of U.S. spot Bitcoin ETFs have exceeded $120 billion, further confirming this development trend.

Despite strong momentum, the infrastructure for using native Bitcoin as collateral remains limited. Currently, most on-chain solutions rely on custodial lending or wrapped forms of Bitcoin. While these patterns are feasible, as applications deepen, their limitations are becoming increasingly significant: currently, less than 1% of Bitcoin assets are wrapped, while over $1.4 trillion in Bitcoin assets are idle — to use them as native collateral, one must either relinquish custody or convert the assets into wrapped versions.

The custodial model requires users to completely relinquish ownership of their Bitcoin. Wrapped Bitcoin requires transferring the assets to another system, which may be considered both a disposal of the original asset and an acquisition of the new asset in many jurisdictions. This dual recognition may trigger complex tax, compliance, and operational issues that many institutions and long-term holders seek to avoid.

Babylon is forging a different path.

We are building a trustless Bitcoin vault. This scheme enables native Bitcoins to be securely locked and used directly as collateral without wrapping, custodianship, or intermediaries. The Bitcoin vault is built on the Bitcoin protocol, allowing external applications to verify the Bitcoin's lock status and automatically execute collateral conditions, unlocking, or liquidation rules through cryptographic mechanisms (rather than human discretion). Its core technology utilizes witness encryption and obfuscation circuits, achieving efficient verification of zero-knowledge proofs on the Bitcoin network.

Bitcoin, always on the Bitcoin network.

Users maintain full control of their private keys.

Assets undergo no transformation of any kind.

While preserving the trustless nature of native Bitcoins, the Bitcoin vault seamlessly integrates with both decentralized and traditional financial systems.

The Bitcoin vault significantly expands the use cases of native Bitcoins. It enables services such as lending, stablecoins, insurance, credit issuance, and structured products to operate without relying on asset wrapping or re-collateralization. The demand for such products in traditional financial markets is evident, as seen with several banks currently offering Bitcoin-backed loans. Babylon can facilitate equivalent financial activities while upholding the native form and integrity of Bitcoin.

For institutions, the Bitcoin vault reduces counterparty risk, streamlines operational processes, and eliminates regulatory uncertainties arising from asset transformation. For users, it provides essential financial functions while preserving the fundamental value proposition of Bitcoin.

Simultaneously, the Babylon Bitcoin vault also opens up new use cases for the BABY token. As applications, vault providers, and an integrated ecosystem around the Bitcoin vault continue to evolve, BABY's role in the ecosystem will expand to support system coordination, participation incentives, and future value capture mechanisms. While its economic model is still actively being refined, the Bitcoin vault has already laid a solid foundation for BABY to play a crucial role in a range of future native Bitcoin financial products.

As Bitcoin's global financial applications grow, the infrastructure supporting its development must evolve towards scalable, verifiable, and trustless mechanisms to meet institutional-grade requirements. The involvement of a16z crypto further solidifies our goal: to fully develop the Bitcoin vault infrastructure needed to enable Bitcoin to play this key role.

Our mission is to allow Bitcoin to become an efficient, programmable native collateral without sacrificing its core principles. This is not to replace the existing system but to expand the possibilities of finance, providing a new trustless option that aligns with Bitcoin's principles and the demands of the modern financial market.

We are building towards a future where Bitcoin can serve as the foundation for global financial applications while consistently maintaining its essence—a self-sovereign, user-custodied asset rooted in its native chain. The next chapter for Bitcoin will start from the Bitcoin Treasury, and we are fully committed to constructing the infrastructure that will bring this vision to life. We are honored to have the support of a16z crypto as we work together towards this goal.