Babylon's Fisher Yu says Bitcoin should become crypto's default collateral

Fisher Yu, co-founder of Babylon Labs, says Bitcoin should become the default collateral of on-chain finance, and that holders will put it to work only if they never hand it to a custodian.

He makes the case as deposits in Babylon's protocol were worth $3.32 billion on Oct. 18, 2026, up 5.8% over 30 days, according to DefiLlama.

Yu laid out the plan in an Oct. 8 interview with BeInCrypto at TOKEN2049 in Singapore. Babylon, backed by a16z crypto, lets Bitcoin holders stake their coins and is now building a way to borrow against them without wrapping or bridging.

Where Bitcoin capital sits now

Bitcoin held through U.S. spot funds earns no yield. U.S. spot Bitcoin ETFs held $106.06 billion in net assets on Oct. 12, about 6.35% of Bitcoin's market value, SoSoValue data reported by TokenPost show.

Flows have turned soft. The funds lost a net $65.4 million on Oct. 12, led by BlackRock's iShares Bitcoin Trust, by the same data.

Babylon's pool is small next to them. ETF assets are about 32 times the value locked in Babylon, our calculation from the two figures shows.

Lending is where Babylon wants to grow. Babylon Labs first proposed on May 25 that Aave V4 users borrow against Bitcoin held in its vaults, with "No wrapping, no bridging, no custodians," in a post on Aave's governance forum.

'Safe yield' from Bitcoin

Yu's first argument is that demand is proven. Babylon's staking protocol lets holders lock Bitcoin to help secure other blockchains and earn rewards in return.

He said the staking protocol alone has activated more than $10 billion worth of Bitcoin and now holds more than 40,000 coins. That, he said, "proves that there's a very strong demand in generating safe yield from their Bitcoin."

The check: the dollar value is rising, the coin count is not. Babylon Labs said in January, in a recap of its fourth-quarter founders call, that the staking protocol had reached about 60,000 Bitcoin.

Yu's figure of more than 40,000 implies up to a third fewer coins than that level, our calculation shows. The $10 billion figure matches the same recap, and both are company-reported.

Vaults instead of custodians

Yu's second argument is about custody. Babylon's next product is a vault that lets native Bitcoin serve as general-purpose collateral while the holder keeps control of the keys, he said.

"We want Bitcoin to become the default collateral asset and credit asset," Yu said.

Borrowing against Bitcoin today usually means sending it to an intermediary that takes possession of the coins, Fortune reported when a16z crypto invested $15 million in Babylon in January.

The check: the Aave plan has moved to a formal request for comment. Babylon's Oct. 14 proposal would add two Aave V4 modules, one for borrowing stablecoins against vaulted Bitcoin and one for liquidations, The Crypto Times reported.

The proposal sets no deployment date. Risk limits are still to come from Aave's risk providers, and Babylon is running another round of audits, by the same report.

Do ETFs and vaults compete?

Yu says they serve different buyers. "The investment into ETF is mainly for a covering exposure to Bitcoin's upside without buying spot BTC," he said, often "due to accounting, tax, or compliance reasons."

Babylon, in his telling, is for people who already hold the coins and want more from them, a question of capital efficiency. "We are actually a very good complement with each other," Yu said.

The check: the two markets differ by an order of magnitude. ETF assets of $106.06 billion compare with $3.32 billion in Babylon, so vault lending would have to grow many times over before it registers with fund holders.

Agents on a short leash

Yu also set rules for AI agents that manage crypto for their owners.

"As a Bitcoiner, I will never allow my agent to touch my big main Bitcoin account," Yu said.

In his design, an agent can move stablecoins only between a funding account and approved yield sources, and it "cannot take your stablecoin away from your smart contract," he said.

The check: regulators are asking the same question. "Who is on the hook if an agent makes the wrong purchase?" Federal Reserve Governor Christopher Waller asked on Sept. 29, in a speech on payments in the age of AI agents.

Waller said fraud models built for human behavior will need recalibrating for agents. Yu's answer is to cap what the agent can reach in code rather than rely on monitoring after the fact.

By the numbers

The other side: Washington and the coin count

Yu tied the next leg of growth to U.S. law. He said passage of the CLARITY Act, the crypto market-structure bill, would be an even bigger catalyst for the industry.

That catalyst is on hold. The Senate voted 49-50 on Sept. 15 on a motion to take up the bill, short of the 60 votes needed, and passage this Congress is "widely viewed as unlikely," law firm Orrick wrote on Oct. 2.

Babylon also has a business to prove. It had no revenue when a16z crypto invested in January, Fortune reported, and its own figures show fewer coins staked than the level it cited in January.

What to watch: the Aave vote

The first signal is Aave governance. A vote that approves the Babylon modules and sets a deployment date would put native Bitcoin collateral into a major decentralized lending market.

The second is deposits counted in coins, not dollars. A Babylon balance rising above the 40,000 Bitcoin Yu cited would show holders choosing vaults over doing nothing.

The third is ETF flows. If fund outflows continue while Babylon's coin count grows, Yu's view that the two products serve different buyers gains support.

What we do not know is what yield vault depositors will earn once Aave's risk providers set the terms.

How we reported this: Yu's remarks come from his Oct. 8, 2026, interview with BeInCrypto at TOKEN2049 Singapore, checked against the video's auto-generated captions. Babylon deposits come from DefiLlama as of Oct. 18; ETF figures from SoSoValue as reported by TokenPost. The 32-times ratio is our calculation: $106.06 billion / $3.32 billion. Aave details come from Aave's forum and The Crypto Times; the CLARITY Act status from Orrick. Babylon's staking figures are company-reported.