Catenaa, Wednesday, January 14, 2026- Venture firm a16z crypto has invested $15 million in Layer 2 protocol Babylon to fund its Babylon Trustless Bitcoin Vaults (BTCVaults), enabling native Bitcoin to serve as onchain collateral without custodians or wrapped tokens, various reports, includig the Fortune reported.
The move brings Babylon’s total disclosed funding since 2023 to $103 million, including prior rounds led by Paradigm.
Co-founder David Tse said BTCVaults allow Bitcoin to remain on its base layer while being verifiably locked as collateral. The system uses zero-knowledge proofs, witness encryption, and garbled circuits to confirm assets remain in place and enforce collateral conditions automatically. Tse emphasized that the infrastructure preserves custody with users, avoiding synthetic tokenization while supporting applications across lending, borrowing, stablecoins, and credit issuance.
The BTCVaults also aim to expand the utility of Babylon’s native token, BABY, which will play a role in vault coordination and ecosystem participation.
A16z partners Guy Wuollet and Elizabeth Harkavy confirmed the $15 million investment was a direct purchase of BABY, backing Babylon as a “native Bitcoin lending protocol” with productive collateral capabilities.
According to Tse, less than 1% of Bitcoin is currently wrapped for decentralized finance use, while over $1.4 trillion remains idle. Babylon’s architecture is designed to unlock this capital in a trustless manner aligned with Bitcoin’s principles.
Following the announcement, BABY rose about 12% to trade near $0.02, remaining roughly 87% below its April 2025 all-time high. The investment signals growing interest from venture capital in infrastructure that increases Bitcoin’s utility in DeFi without compromising its native security and decentralization.
