A Stanford professor is turning academic research on Bitcoin collateral into a live product through the btc vaults protocol, aimed at cutting out financial middlemen.
Babylon’s vision for non-custodial Bitcoin collateral
When a Bitcoin holder wants to earn yield today, they usually turn to a third party like Tether or Coinbase. These platforms let users swap BTC into stablecoins or wrapped BTC that can then be deployed on lending protocols such as Aave. However, that model introduces custodial risk and reliance on centralized players.
Stanford professor David Tse is proposing a different route. He co-founded Babylon, a crypto startup that has built a decentralized protocol called BTCVaults. The system aims to let users collateralize their Bitcoin more directly, while tightening control over their assets compared with the traditional exchange-based route.
Tse describes the mission in simple terms. “We are building protocols using cutting edge technology to enable people to cut out the middle person and go straight to the goal, which is to be productive,” he said. Moreover, he frames Babylon as a way to put academic innovation into real-world circulation.
How BTCVaults tackles custodial risk
There are clear downsides when Bitcoin owners send coins to a centralized intermediary, Tse argues. The custodian takes possession of the cryptocurrency, and users effectively surrender their keys. That said, the convenience of exchanges and stablecoin issuers has kept most yield strategies tied to these gatekeepers.
Babylon’s protocol is designed to enable collateralization without forcing users to relinquish control of their Bitcoin. In practice, the architecture seeks to reduce traditional custodial risk while preserving access to lending markets. This approach positions the platform as an alternative to centralized services rather than a replacement for existing DeFi tools.
Tse views Babylon’s primary competition as centralized offerings such as Coinbase, Kraken, and Tether. However, he also positions the project as complementary to decentralized lending protocols, since users still want to access yield opportunities across the wider crypto ecosystem.
Funding round led by a16z crypto
On Wednesday, Babylon revealed it had raised $15 million from a16z crypto, the digital assets arm of venture capital firm Andreessen Horowitz. The funding underscores growing investor interest in non-custodial Bitcoin infrastructure and decentralized lending rails. However, Tse declined to disclose Babylon’s valuation in his interview with Fortune.
The company, which currently employs more than 40 people, is still in the pre-revenue phase. Moreover, management expects meaningful income only after its technology is fully connected to major lending protocols and begins supporting user activity at scale.
Aave integration and product roadmap
Babylon plans to integrate its technology with the lending protocol Aave in the second quarter of 2026. The goal is to allow Bitcoin holders to post collateral via Babylon while accessing liquidity and yield opportunities on Aave. That integration is expected to be a key milestone in turning the BTCVaults concept into an operational, revenue-generating product.
For now, Babylon does not generate revenue. However, the team expects that once the Aave integration is live and users can leverage non-custodial Bitcoin collateral for decentralized lending, new fee models and business lines will emerge. This staged rollout reflects the broader market shift toward more trust-minimized yield strategies.
According to Tse, the btc vaults design is central to that strategy, because it focuses on preserving users’ control over their assets while still enabling them to tap DeFi protocols. The company is betting that institutional players and sophisticated retail investors alike will prefer structures that keep coins closer to their original wallets.
Academic roots and leadership structure
David Tse co-founded Babylon in 2021 with Fisher Yu. Interestingly, the company does not have a CEO. Instead, Tse serves as research scientist, while Yu is the firm’s CTO. This unusual setup echoes Babylon’s academic DNA and its focus on protocol design over traditional corporate hierarchy.
Tse has been a professor at Stanford for more than a decade, where he runs a blockchain-focused research lab. Before that, he earned a PhD from MIT and spent 18 years teaching at UC-Berkeley. Moreover, his move into entrepreneurship reflects a desire to push research beyond the confines of journals and conferences.
In his view, academic deliverables such as research papers are like artwork admired by only a few people. “A startup is the natural way of converting research, innovation, and ideas into a product that people can use,” Tse said. That philosophy now underpins Babylon’s effort to translate cryptography and systems theory into a functioning Bitcoin collateral platform.
From research lab to live Bitcoin markets
Babylon’s trajectory illustrates how university research can feed directly into the evolving infrastructure of digital markets. By targeting Bitcoin collateralization flows and connecting to DeFi pools like Aave, the project aims to bridge academic theory and actual capital deployment.
If the model succeeds, it could reduce users’ dependence on centralized exchanges for yield and shift more liquidity toward programmable, non-custodial structures. That said, execution over the next several years, including the planned 2026 integration, will determine whether Babylon’s approach can gain meaningful share of the Bitcoin lending landscape.
In summary, Babylon is trying to convert years of blockchain research into a scalable protocol that keeps Bitcoin holders in control of their keys while still opening access to credit, yield, and broader crypto market participation.
Source: https://en.cryptonomist.ch/2026/01/07/btc-vaults-noncustodial-bitcoin-collateral/
