"The market value of Bitcoin is $1.4 trillion, most of which is quietly lying in cold wallets, doing nothing." David Tse, a chair professor at Stanford University and co-founder of the Babylon Protocol, deeply analyzes the industrial paradigm shift of Bitcoin from "digital gold" to "programmable collateral," the structural security dilemmas of cross-chain bridges, and the long-termism philosophy of builders traversing multiple cycles in an exclusive interview on the East-West Capital Dialogue program "168X."

David Tse is one of the few individuals who stand at the pinnacle of academia while being at the forefront of the crypto industry. He is the inventor of the proportional-fair scheduling algorithm, which benefits billions of people worldwide through 3G, 4G, and 5G speeds. In 2017, he was awarded the IEEE Claude E. Shannon Award (the highest honor in the field of information theory); in 2018, he was elected a member of the National Academy of Engineering, with over 77,000 citations of his papers. After earning his Ph.D. from MIT, he taught at Berkeley for 18 years before moving to Stanford, where he has recently shifted his research focus to blockchain infrastructure and co-founded Babylon with Fisher Yu in 2021, aiming to unleash the productivity of Bitcoin in a trustless manner.

This article is a summary of highlights from the 168X program (@168X_Fortune)------a top dialogue platform that deeply connects Eastern wisdom with Western innovation, focusing on cutting-edge fields such as AI, blockchain, robotics, space technology, and bioengineering, exploring how technology, capital, and human wisdom will reshape the future of human civilization. The program is hosted by ex-banker Mr. Z.

Host: Mr. Z (@168MrZ) · Guest: David Tse (@dntse)

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$1.4 Trillion of Sleeping Capital: The Mental Leap from Staking to Programmable Collateral

The Bitcoin ecosystem is facing a huge paradox: it is the highest market-valued crypto asset, yet it is also the most "inactive" asset.

The vast majority of Bitcoin lies quietly in cold wallets or exchange accounts, generating no income and participating in no economic activities. For David Tse, this is not a problem of the holders, but a lack of infrastructure.

In the past two years, Bitcoin staking has rapidly risen as an emerging paradigm. The largest single protocol in the Bitcoin staking space has locked up about 58,000 Bitcoins, worth approximately $4 billion------and this number continues to grow.

However, Tse believes that staking itself is just a starting point, not the endgame.

"Bitcoin staking is a rather narrow application," he bluntly states, "it only does one thing------protects blockchain security. Important, but just one thing."

The real mental leap lies in: viewing staking as a specific case of "Bitcoin as collateral." Once this perspective is opened, the application scenarios will expand exponentially------lending, insurance, structured financial products, any DeFi scenario that requires collateral could potentially involve Bitcoin.

"In lending protocols like Aave or Morpho, you can use Bitcoin as collateral to borrow stablecoins," Tse explains. "Your Bitcoin sits in a cold wallet doing nothing, but now it can be deposited into a self-custodied trustless vault, borrow USDC, and then use those stablecoins for DeFi or directly for real-world consumption. This makes your Bitcoin productive."

This is the core of the "Programmable Vault" concept------no longer limited to a single staking use, but a universal collateral layer that can interface with any DeFi application. Insurance underwriting, lending collateral, and even decentralized insurance covering DeFi hacking attacks are all directions being explored.

a16z crypto recently invested $15 million in Babylon's "Bitcoin Vault" direction. Tse explains the investment logic behind it has two layers: "First, programmability means it can connect to any DeFi application, and as DeFi grows, this technology will also grow. Second, the underlying technology needed to achieve all this is true deep tech, which a16z has always preferred to invest in for its long-term impact."

The total market value of Bitcoin is $1.4 trillion. Tse believes that even activating just 1% of it represents a $14 billion addressable market.

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Cross-Chain Bridges are the Security Black Hole of the Crypto World: Returning to Satoshi's "Trustlessness" Fundamentalism

To understand why the "Programmable Vault" is important, one must first understand what it seeks to replace.

Today, Bitcoin holders who want to participate in DeFi on other chains like Ethereum typically need to go through "wrapping" or "bridging"------handing over Bitcoin to third-party centralized custodians like Coinbase or BitGo in exchange for a "wrapped Bitcoin" (such as wBTC) that circulates on the target chain.

The problem with this process is not efficiency, but security.

The largest-scale hacks in cryptocurrency history have largely concentrated on cross-chain bridges. From the $625 million stolen from Ronin Bridge to the $320 million vulnerability in Wormhole, bridging infrastructure has become a recognized security black hole in the entire industry.

"We believe this is one of the core security pain points in cryptocurrency," Tse says. "Wrapped assets require third-party centralized custodians, and we want to adhere to Satoshi's original vision for Bitcoin------trustlessness."

But "trustlessness" is easy to say, but extremely difficult to implement. Tse cites a recent "Trustlessness Manifesto" written by Ethereum founder Vitalik Buterin to elaborate on this dilemma.

"Vitalik's core point is that trustlessness must be practically operable," Tse explains. "It can't just stay at the theoretical level------theoretically you can verify, but if verification requires running a supercomputer or having TB-level hard drives, then for ordinary people, it's just empty talk. This is theoretical trustlessness, not practical."

This is a profoundly important distinction. For a long time, the blockchain world has claimed "anyone can verify," but in reality, the technical threshold for verification is extremely high, and the vast majority of users still rely on third-party infrastructure providers.

"If you hold a small amount of Bitcoin, you might trust the infrastructure provider to verify on your behalf," Tse admits. "But if you are the kind of mysterious whale who stakes 10,000 Bitcoins at once------you definitely want to verify yourself."

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When ZK Proofs Reduce Verification Costs by 1000 Times: "Trustlessness" Moves from Theory to Practice

Bringing "trustlessness" from theory to practice, the core technical challenge lies in the verification costs of zero-knowledge proofs (ZK Proofs).

What is called "programmability," in Tse's definition, is essentially the ability to verify the proofs of any program. You do not need to trust what the other party says; you only need to verify whether the proof they provide is correct. This is the cornerstone of a trustless architecture.

The problem is that current mainstream ZK proof verification solutions (such as Groth16) have extremely high initialization and storage costs on Bitcoin------often requiring TB-level storage and hours of computation time. For institutional-level large assets, this means there is a three-order-of-magnitude gap between "can verify" and "actually can verify."

Recently, a new verification protocol jointly developed by Stanford and Berkeley was released, reducing the initialization and storage costs of Groth16 ZK proofs by about 1,000 times.

The significance of this breakthrough lies not in the speed itself, but in how it changes the distribution of trust.

In the past, only institutions with powerful computational infrastructure had the capability to verify on their own. But when verification costs are reduced by three orders of magnitude, ordinary users------especially large Bitcoin holders------can complete verification on their own devices, no longer needing to rely on any third party.

"This is true trustlessness," Tse summarizes. "It's not just theoretically possible for someone to do it; you can do it yourself."

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The Real Pace of Institutional Entry: Much Slower Than You Think

Technological breakthroughs are necessary conditions, but far from sufficient conditions. In the Bitcoin DeFi space, the pace of institutional capital entry is much slower than depicted in market narratives.

Tse illustrates this with a real case.

In the Bitcoin staking field, the largest institutional staker is Kraken, which has invested 20,000 Bitcoins. But Kraken did not enter the market heavily at first------it decided to invest only after observing related protocols for nearly 8 to 10 months.

"Security is their top concern," Tse says. "They will conduct extensive observation, testing, and understanding."

As for whether larger Bitcoin holders, such as MicroStrategy or BlackRock's Bitcoin ETF IBIT, will deposit assets into a trustless vault to participate in DeFi? Tse's judgment is: "This is a long-term plan. These super-large institutions will wait a long time before adopting new technologies."

This stands in stark contrast to the pace of retail investors.

The largest individual Bitcoin staker is an unidentified whale who staked 10,000 Bitcoins in just three transactions. Individual whales act decisively, while institutional capital watches slowly------this divide is a typical reflection of the crypto industry's transition from "wild" to "institutionalized."

From the perspective of industry implementation, Tse reveals that lending will be the first application direction for the trustless vault, and they have already begun to interface with leading DeFi lending protocols like Aave. However, he maintains a scholarly caution regarding the timeline: "The programmable vault will be used for many different application scenarios, but to launch the protocol, we must first focus on one scenario to deepen and thoroughly explore."

Security, especially security that has been validated over time, is the only passport recognized in the institutional world.

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The Time Scale of Builders: Whether $70,000 is Sad or Happy Depends on Your Perspective

As the interview nears its end, host Mr. Z poses an eternal question in the crypto circle: Will Bitcoin reach $200,000 by the end of the year?

Tse's answer is very candid.

"I am not a market prediction expert; I'm really bad at that," he says. "What I excel at is building technology that can withstand the test of time, hoping it can endure multiple cycles of Bitcoin."

He then provides an interesting perspective comparison.

"You mentioned before the interview that Bitcoin dropping to $70,000 is frustrating because it was $120,000 a few months ago. But for us, $70,000 is great. When we started this project four years ago, Bitcoin was only $20,000 to $30,000."

$70,000 is a psychological trauma for traders after a drop from $120,000; for builders, however, it is a substantial return starting from $20,000. The same number evokes two entirely different emotions, with the difference lying only in which time scale you choose to view it from.

"If you only look at the past few months, $70,000 is indeed frustrating. If you take a long-term view, $70,000 is actually very good."

Tse refuses to predict short-term prices but is unequivocal about long-term trends: "Bitcoin, in the long run, will continue to rise."

When asked what he would like to say to the entire industry, this scholar who has experienced countless cycles in both academia and industry gives a brief yet profound answer:

"We must believe that the technology we are building------trustless technology------will have a long-term contribution to the progress of human society."

He also shares a philosophical reflection on the scale of civilization. Tse believes that human nature is closely tied to centralized authority, with the 4,000-year history of imperial power in Chinese civilization as an example. "In a sense, the pursuit of trustlessness is somewhat against human nature. But I believe this is the right direction."

This brings to mind the inspiration behind the project's name: Babylon, the first market in human civilization history------a city built specifically for people to gather and trade.

"On one side is Bitcoin, and on the other side is the rest of civilization. Our protocol connects the two in a trustless manner."

In a crypto world filled with short-term speculation and narrative hype, a Stanford professor who has received the highest honors in information theory chooses to spend four years solving a "boring" infrastructure-level problem. This itself may be the best annotation of the "builder's time scale."

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About 168X

168X is a top dialogue platform that deeply connects Eastern wisdom with Western innovation, dedicated to exploring how technology, capital, and human wisdom will reshape the future of human civilization. The program focuses on cutting-edge fields such as AI, blockchain, robotics, space technology, and bioengineering, engaging in dialogue with global leaders and thought builders to reveal the core driving forces of future wealth and innovation from a unique dual perspective of East and West. The program is hosted by ex-banker Mr. Z.