Babylon, a decentralized protocol focused on enabling native Bitcoin staking and lending, received $15 million in funding from a16z Crypto through the sale of Babylon’s native BABY (BABY) tokens to the digital asset arm of Andreessen Horowitz.
In a blog post published Wednesday, a16z Crypto said the funding will support continued development of the protocol’s Bitcoin-native infrastructure.
“Bitcoin’s limited programmability” has left large amounts of Bitcoin (BTC) sitting idle, the blog reads, arguing that enabling its use as collateral could unlock a major source of onchain capital and allow BTC to function as a productive asset within decentralized finance (DeFi).
Founded as a Bitcoin staking protocol in 2022 by David Tse and Fisher Yu, Babylon Labs is developing a Bitcoin-native system of trustless vaults that allows BTC to be used as collateral in onchain lending while remaining on the Bitcoin network and under the user’s control.
In December, Babylon partnered with Aave Labs to bring native Bitcoin-backed lending to Aave V4, Aave’s latest lending architecture, with Babylon aiming to build a dedicated “Bitcoin-backed Spoke” that allows BTC to be used as collateral without wrappers or custodians.
The integration is expected to enter testing in the first quarter of 2026, with a joint product launch targeted for April 2026.
BABY rose sharply on Wednesday and was up about 5% at time of writing, according to CoinGecko data.
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Bitcoin lending evolves in 2025
Crypto-backed lending was widely blamed for magnifying the fallout of the 2022 FTX collapse, as opaque balance sheets, rehypothecation and excessive leverage unraveled alongside falling token prices.
In 2025, however, the sector is resurfacing in a more restrained form, with lenders emphasizing full collateralization, stricter custody practices and tighter risk controls.
In January, Coinbase reintroduced Bitcoin-backed loans in the United States, allowing eligible users outside New York to borrow up to $100,000 in USDC (USDC) against BTC held on the platform. The loans are facilitated by Morpho Labs and executed on Base, Coinbase’s Ethereum layer-2 network.
In March, Xapo Bank launched Bitcoin-backed US dollar loans, enabling eligible clients to borrow up to $1 million against BTC holdings. The bank positioned the product for long-term Bitcoin holders seeking liquidity without selling, stressing that collateral is held in institutional MPC custody and not rehypothecated.
Meanwhile, digital asset lender Ledn moved to a fully collateralized, Bitcoin-only lending model in May. Under its revised structure, the company said client Bitcoin used as collateral will remain in custody and will not be loaned out or reused to generate yield.
Ledn co-founder Mauricio Di Bartolomeo told Cointelegraph in June that Bitcoin holders are also increasingly using BTC-backed loans to finance real estate purchases, allowing them to access liquidity while typically avoiding capital gains taxes.
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