#69 - Meet the Startup Turning Bitcoin Into A Yield-Generating Asset

This is a podcast brought to you by Alumni Ventures, a show where we tell you the stories and creators of tomorrow. Welcome back everyone to The Tech Optimist.

With Babylon, we try to, you know, take all the research learnings we get and apply to the real world and see to make a real impact. And so we've been working on Babylon

That is David Hsieh, co-founder of Babylon.

It's great that you're building enabling layers for this ecosystem.

And that is Ray Wu, managing partner here at Alumni Ventures. And he's designed assembly software for DNA and RNA sequencing data. He's got like a bunch of awards that I'm not gonna read 'cause there's too many of them to read. And that's me. You know me. My name is Sam Herrick. I'm the guide and editor for this show. All right, everyone at this point knows the drill for this show. So first, I'm going to get you a little sneak peek into what Babylon does, what their, you know, their mission is, and then we can hop into the interview. So Babylon is a Bitcoin startup. So this is a very financially, uh, focused episode. Um, so the core concept and core values of what Babylon does is they're developing— is they're developing a self-custodial Bitcoin staking protocol. It aims to build a Bitcoin-secure decentralized world by allowing Bitcoin holders to stake their BTC on proof-of-stake systems. This enables Bitcoin staking without the need for smart contracts using Bitcoin's time-locking mechanism. It allows POS networks to leverage Bitcoin security without wrapping or bridging solutions. And some key features for this, it's got self-custodial staking, so it's using retained control of their Bitcoin, unstaking on demand, and leverage over— leverages over $1 trillion of inactive Bitcoin capital. So phase 1 of the mainnet launch was set to launch in August of this year, and it'll be in 3 phases. So the first phase allowing BTC holders to stake their coins. As far as funding goes, they've raised $70 million in a funding round led by Paradigm, and they've received investment from Binance Labs. They're supported by over 200 finality providers. They're integrated with wallets like Binance Web3 Wallet, OKX Web3 Wallet, Bitget Wallet, and others. They are co-founded by Stanford professor David Shea and Dr. Fisher Yu in 2022. And some potential, you know, impact for this is they could redefine BTC staking parameters on POS chains. So it aims to enhance the crypto economy security of POS networks using Bitcoin's large market cap and security. And this may lead to deflation in POS networks by reducing the need to mint new tokens for validation incentives. Since, uh, currently they've already launched successful testnets, including one that saw over 100,000 stakers within 48 hours. So Babylon represents a significant innovation in the cryptocurrency space, potentially bridging the gap between Bitcoin security and the efficiency of POS systems. Now we're going to get into the nitty-gritty about that a little bit later, but before we hop into the episode, we're going to get some, uh, admin stuff out of the way. So we're going to do an ad really quick here for, um, Elena Ventures, uh, fintech fund, and then, um, we're gonna do an, uh, a disclaimer, and then we'll hop right into the nitty-gritty of the interview. So hang tight, don't go anywhere, this is a good one.

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Hi, my name is Ray Wu. I'm the managing partner at Alumni Ventures. Today I'm speaking with David, who is a co-founder of BabylonChain. We're truly excited to support the company and be part of this journey together. Hi, David. Welcome to the show. First of all, a huge congratulations on your success. Babylon is a unicorn now. Thank you. I still remember our Zoom calls and our meeting in your garage about 3 years ago to brainstorm on which product to launch and the pros and cons of various VCs for the seed round. It's a great journey to get here. Truly excited for you. Maybe as a starting point, could you please introduce yourself and Bailongchain?

Yeah, so great to be here on your show, Ray. I still remember almost 3 years to this day, we started the journey indeed at this garage, same location as this podcast. And yeah, a few words about myself. So I started doing research in the blockchain space about 6 years ago. Before that, I was doing research on wireless communication. I'm also a professor at Stanford University. And so in fact, I think we came into contact, Ray, because Ray focuses on supporting university, a lot of university academics. Yeah. becoming entrepreneur. And so that's how we got started, connected, and began this journey. Yes. Um, so my background is research, but with Babylon, we try to, you know, take all the research learnings we get and apply to the real world and see to make a real impact. And so we've been working on Babylon for almost 3 years now, almost 3 years now. And, um, yeah, so that's sort of my background and how I got here.

Yeah, great. Um, you're a famous professor at Stanford. So what inspired you to start this venture? Um, are there any industry catalysts or trends that influenced your decision to start at that time?

Okay. Before we talk about trends and we hop into, uh, you know, market opportunities with David, I want to give our listeners and everyone out there who doesn't know who David Hsieh is a bit more information on how legendary of a researcher he Yes. So, uh, he's a Stanford professor, as he said, of engineering. Um, he also previously was a professor at the University of California, Berkeley from 1995 to 2014. His own education, he's got a bachelor's in systems design engineering from University of Waterloo, and he's got an MS and a PhD in electrical engineering from MIT. And his research focus is on information theory and its applications in wireless communication, machine learning, energy, and computational biology, and he researches blockchain technology and security. But, um, he is the inventor of the proportional fair scheduling algorithm used in 3G, 4G, and 5G cellular systems. He's a co-author of the widely used textbook Fundamentals of Wireless Communication, um, and he's designed assembly software for DNA and RNA sequencing data. He's got like a bunch of awards that I'm not gonna read because there's too many of them to read. Um, but he's As recent work, he's the co-founder of BabylonChain, which is this company. Um, he's collaborating with other blockchain projects, uh, and he's published research on Bitcoin enhanced proof of stake security. Um, his research has earned him over 77,000 citations, and the list and his work goes on and on. He's a very accomplished person, um, and he's a highly respected figure in electrical engineering and information theory, uh, with significant contributions to wireless communications, And more recently into blockchain technology and security. So his work has got a wide-range impact on both academia and industry.

Yeah, you know, I have— I've been an academic ever since sort of the start of my career many years ago, but I've always wanted to not only do research, But take the research to a next level, which is to impact the development of a technology. And as you know, developing a technology is much more than just research, right? Research is like the first step. Research is to figure out what is possible. But once you figure out what is possible, to convert it into a reality is another story. And I was quite lucky early in my career because as I was doing research in wireless communication, I got involved with this company called Qualcomm. At that time, still a very small company. And at that time, it turned out that this company was able to essentially build out the entire 3rd generation wireless communication. And I was there working with a group and transferring some of my technology into that 3G standard, into that 3G standard. And so my impact was through this happening, working on this company. And so in my mind, I learned 2 things from that experience, right? One is you have to be at the right time at the right place when you influence a technology. You have to be in at a time when the infrastructure is being rolled out, being rolled out. For example, if I had do the same research, but now I'm trying to impact 5G, 6G, well, it's too late because everything is already set. A lot of things already set in stone. And so blockchain, my feeling is that we are exactly at the same time as wireless 20. 30 years ago, where it's still early. The applications have not really fully appeared yet. There's some initial inkling of potentially interesting application, and people are thinking about sort of how to lay down the foundation of the infrastructure. And that's one reason why I'm inspired. Now, one thing difference between blockchain communication is that whereas there are bigger companies like Qualcomm or Broadcom in wireless, there's no such thing in blockchain. Most of the innovation is happening at the startup level. So I felt like joining, doing a startup is kind of the right way of, you know, transferring some of the research learnings that we had to impact the real world.

Indeed, indeed. Timing works out great. And I'm glad you started. So when you first started, It was more about security. Now it's about Bitcoin staking. As I see a lot, like, you got $1.5 billion stake on your chain now. Can you share more about the product evolution, the ecosystem buildout over the last 3 years?

Yeah. So our research in academics and research in general is focused on security. So when you build a startup, right, you obviously start from your expertise. It's like, okay, what do I know? You should do So therefore, we have a very strong focus on, on security. Um, now the one lucky thing we had was not only we focus on security, but we take as a starting point extracting the security of Bitcoin. Okay. Now, oh no, um, as we progress on building different protocols, we realize that just Pure security, pure security is kind of not enough to make a significant impact. And here's the reason why, right? Because, you know, when you build a security product, people don't care about security until they get hacked. Okay. So security is not like the first order thing that people think about. So we feel like where security is important, I think for the longer term health of the blockchain ecosystem, we need to couple that with something else which have a broader appeal. To make it into a more holistic product that more, more people will adopt. And so we came up with this idea of staking, in particular Bitcoin staking, because staking, if you think about it, has a 2-sided aspect to it. From the point of view of blockchain, staking provides security. But from the point of view of the asset holder, in this case Bitcoin holder, Sticking provide an opportunity to earn reward, and so by focusing on sticking and by inventing this new protocol called Bitcoin Sticking, we're enable we're able to keep our sort of our central thesis of the importance of security, but at the same time broaden it to a wider range of people. In this case, Bitcoin holders. And you know, the thing about crypto is that almost everybody holds Bitcoin. So that's kind of the. The the good thing about Bitcoin.

Yeah, since Babylon is about enabling the Bitcoin ecosystem, then do you have any prediction on this where this ecosystem is going to go in the future?

Yeah, so so so Bitcoin is the oldest blockchain. It's the OG blockchain, right? And it's also the most valuable asset. So. But Bitcoin has kind of a bad rap historically, in fact, because a lot of people kind of abandoned, a lot of technologists kind of abandoned Bitcoin because they feel it's too, some people think of Bitcoin as like a religion. And one thing about religion is that you try to minimize the change, right? Because if you keep on changing in religion, then it's kind of not a very successful religion. So a successful religion is never changed. But for technology, it's something that never changes. is also rather difficult because you need to innovate. And so a lot of technologies moved on to build Ethereum, to build Solana, et cetera. And so what happens now is that people say, hey, you know what? Actually, although Bitcoin is very slowly changing, but with all these technologies that have been built on other ecosystems, one can bring back some of these good ideas back to Bitcoin. In order to make it advance, and the advancement here is really focused on how do we scale Bitcoin such that we leverage the security and we leverage the asset, the value of the asset, but yet be able to scale it so that you can have very high throughput, a very good latency. And and so that leads to the idea of really taking this idea from Ethereum, really Ethereum of layer two L. Wow. And sort of connect it to Bitcoin. And so these L2 form as a scaling solution to Bitcoin. And I think there's a lot of technological progress in addition to Bitcoin staking. There are other technology progress in the past, even like one year, that gives us a lot of hope on realizing this L2 vision around Bitcoin, which is, you know, 4 times The Ethereum asset size.

All right, this is a good time to take a quick break. Hang tight, we'll be right back.

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Yeah, that's what's really exciting, right? I mean, Bitcoin has most of the asset base, yet nothing sort of— it's only considered as asset and nothing built on top of it, like you mentioned. So it's great that you're building enabling layers for this ecosystem. Anything that you want to highlight, the latest developments, the trends, and what some of the success you have built on the BabylonChain at this moment?

Yeah, so, you know, when we— so our main innovation thus far is this idea of taking Bitcoin, the asset, and allow it as a staking asset for other blockchains. These other blockchains include Layer 2, includes, uh, other blockchains like Cosmos chains, etc. And so when we came with this idea, a lot of people, a lot of people tell us your idea won't work. And the reason is Bitcoin holders are very conservative. They don't want to do anything about the Bitcoin. They just want to hold the Bitcoin and that's it. They're not interested in earning yield. They're not interested in providing security for another— perhaps for this program I should not use those language. So for other chains, let's put it that way, for other chains. Bitcoiners would have a more colorful word for those other chains. And so what we have proven with our mainnet launch and with this 1.5 billion TVL Is although 1.5 billion TDL is still a very small percentage of 1.3 trillion asset, but we I think already provide some evidence that it actually is not true that Bitcoiners are not interested in new use cases for Bitcoin. And to us, it's you know we are new protocols, so we're just starting. But there's already some pretty decent evidence that hey, actually there is a significant chunk of Bitcoin holders which are interested in. Earning extra reward for the Bitcoin, provided that the solution has a strong security level. And I think that's sort of where we are. I think that is, in my mind, the major, major learning in the past few months as we launched the mainnet.

Absolutely, especially as this year the Bitcoin ETF launches, right? So from that perspective, I think it's a move beyond the traditional the Bitcoin holders sort of into the financial asset. I can see that trend in terms of Wall Street enabling this layer and essentially to enable this kind of staking and yield on top of, in addition to the security you mentioned. Maybe in terms of the venture rounds and the leading VCs, maybe share a little bit more in terms of the journey that you have done so far and who are the top VCs that have supported you at this moment.

Yeah, so we've gone through 3 rounds of funding, and, um, and you are a strong participant in the, in the seed round. Uh, in terms of the more recent round, uh, we have, uh, the lead investor for the second round is Polychain, uh, and Hack VC. They're co-leading the second round. And the third round, the lead is, um, Paradigm. The lead is Paradigm. So these are the major VCs. I should also mention some other VCs. For example, Framework Ventures was also a strong participant in the second round. There is a VC called Bullish Ventures, which is a relatively new VC. But Bullish Ventures is a strong supporter. They are actually— their support is kind of important for us because they actually own quite a lot of Bitcoins. And so as a Bitcoin holder, You know, their support is very important for us, right? Because, you know, they, they have a very strong stake in the success of the Bitcoin ecosystem and they're putting their bets in some sense onto us as helping them to push this forward.

All right. In that case, Alumni Venture has more than 700,000 community members. Any requests for our Alumni Venture communities? How can we help you?

Consider staking your Bitcoin on our protocol.

Perfect answer. It's truly great to see how it has developed over the last 3 years. I think we can stop here, but it's great to have you with us, David. I'm glad we have a chance to catch up. Uh, Babylon is one of those investments we did in our, uh, fund too. I'm so glad to see your success. Uh, time flies when we're raising our new— yeah, look forward to finding more opportunities to work together. Um, thanks again for being part of the show.

Yep. Thank you so much, Ray.

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