When a Bitcoin owner wants to generate yield from their holdings, they typically go to a third party. That middleman is usually a stablecoin issuer or exchange like Tether or Coinbase that allows the holder to swap their Bitcoin for collateral—in the form of stablecoin or wrapped BTC—to be used in lending protocols like Aave. Now a Stanford professor named David Tse is promoting a new alternative to those systems.
Tse is the co-founder of a startup called Babylon that has created a decentralized protocol, called BTCVaults, which offers users a more direct way to collateralize their Bitcoin.
On Wednesday, the company announced that it raised $15 million dollars from a16z crypto, the crypto arm of the venture capital firm Andreessen Horowitz. Tse did not disclose Babylon’s valuation in an interview with Fortune.
“We’re 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,” Tse said.
There are certain downsides when Bitcoin owners send their holdings to a third party, Tse says. The intermediaries take possession of the cryptocurrency, and the user loses control of the key. Babylon’s protocol, in contrast, enables collateralization without the user relinquishing control of the Bitcoin.
