Bitcoin Layer 2 Babylon raised $15 million from venture firm a16z crypto on Wednesday to fund infrastructure that allows native BTC to be used as onchain collateral without custodians or asset wrapping.
The investment brings Babylon’s total disclosed funding since 2023 to $103 million, following an $18 million Series A and $70 million strategic round led by Paradigm, according to prior reporting by The Block.
Co-founder David Tse said the funding will directly fund the buildout of Babylon Trustless Bitcoin Vaults (BTCVaults), a new product that aims to turn Bitcoin into a productive asset.
Tse noted that less than 1% of bitcoin is currently wrapped for use in decentralized applications, while more than $1.4 trillion worth of BTC remains idle because existing models typically require custody transfers or synthetic representations, according to figures he cited in the statement.
Babylon’s vaults allow native Bitcoin to be verifiably locked as collateral while remaining on the Bitcoin blockchain. BTCVaults are anchored to the base layer and use zero-knowledge proofs to “confirm that the Bitcoin remains in place.”
“Our mission is to enable Bitcoin to serve as productive, programmable, native collateral without compromising its core principles,” Tse wrote in the statement. “This is not about replacing existing systems; it is about expanding what is possible and offering a trustless alternative that aligns with Bitcoin’s ethos and the needs of modern financial markets.”
How Babylon’s trustless vaults are structured
According to the announcement, the vaults enable external applications to verify that bitcoin remains locked, enforce collateral conditions, and trigger unlock or liquidation rules through cryptographic mechanisms rather than discretionary control.
The architecture relies on witness encryption and garbled circuits, allowing Bitcoin to verify zero-knowledge proofs while remaining on its native chain. Tse said the design keeps custody with users and does not transform the asset into a synthetic representation, positioning BTCVaults for use across lending, borrowing, stablecoins, insurance, credit issuance, and other structured financial products.
The development of this infrastructure is also designed to expand the utility of the protocol’s native token. “Babylon BTCVaults introduces new surfaces for the utility of the BABY token,” the statement noted. It said the token’s role would expand to support coordination and participation as the vault ecosystem grows.
In a separate statement on Wednesday, a16z crypto partners Guy Wuollet and Elizabeth Harkavy confirmed the firm’s investment involved a direct purchase of the BABY token. “We are excited to back David, Fisher, and the Babylon protocol with a $15M purchase of $BABY,” they wrote.
The investors characterized Babylon’s vaults as a step toward using Bitcoin as “a thriving digital collateral for credit.” In the near term, they said they see Babylon expanding as a native Bitcoin lending protocol.
Babylon’s BABY token rose 12% over the past 24 hours to trade around $0.02, according to The Block’s price page. The token is up more than 7% over the past 30 days but remains about 87% below its all-time high of $0.1728 set in April last year.
© 2026 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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