Lombard Finance is setting its sights on revolutionizing decentralized finance (DeFi) with a yield-bearing Bitcoin token, potentially unlocking a new wave of liquidity in the ecosystem.
The Battle for On-Chain Dominance
A contest for the top spot in DeFi collateral is heating up. According to DeFiLlama, nearly $126 billion in value is currently locked across DeFi protocols, inching closer to the 2021 peak of $175 billion. Ether (ETH) and its derivatives, such as staked ether (stETH) and wrapped ether (weETH), dominate the market, with wrapped bitcoin (wBTC) and stablecoins trailing behind.
Lombard Finance, however, plans to disrupt this status quo with LBTC, a new liquid Bitcoin token. Co-founder Jacob Philips believes Bitcoin should naturally dominate the DeFi collateral landscape.
“On centralized platforms, Bitcoin is the ultimate collateral. There’s no debate about it. Why not in DeFi?” Philips told CoinDesk. “Bitcoin excels as a store of value, making it the perfect collateral for decentralized finance.”
Bitcoin’s Rising Dominance
Bitcoin has surged 124% since the beginning of the year, outpacing Ether’s 48% increase. Growing political interest in the U.S., including speculation about a potential U.S. strategic Bitcoin reserve, further fuels optimism about Bitcoin’s role in DeFi.
Philips predicts Bitcoin will become a primary liquidity source for DeFi protocols across all networks. With a market cap nearing $1.9 trillion, even a fraction flowing into DeFi could significantly enhance liquidity and efficiency.
“Bitcoin liquidity could rival centralized exchanges if just a small portion enters DeFi,” Philips said.
Introducing Yield-Bearing Bitcoin
Unlike Ether, which can be staked to secure the Ethereum blockchain and earn rewards, Bitcoin lacks native staking capabilities. Lombard aims to address this through Babylon, a protocol enabling Bitcoin staking to secure other blockchains.
Users deposit Bitcoin with Lombard, which stakes it via Babylon, issuing LBTC tokens on a one-to-one basis. These ERC-20 tokens can interact seamlessly with Ethereum-based protocols. The yield for LBTC will come from blockchains secured via Babylon.
Currently, nine projects, including Cosmos Hub, Manta, and Chakra, have integrated with Babylon’s devnet. The protocol has already amassed $5.4 billion in total value locked (TVL) without offering staking rewards, partly due to an ongoing points program, which hints at a potential future airdrop.
Competition in the DeFi Landscape
Despite wBTC’s $12.9 billion market cap, its adoption as collateral remains modest, with only $5.7 billion actively used in major DeFi protocols. By contrast, ETH accounts for $14.5 billion and stETH for $11.1 billion.
Staked Ether tokens, particularly stETH and weETH, continue to gain market share. ARK Invest even reported that DeFi is reorganizing around stETH’s benchmark yield.
However, Philips believes LBTC can succeed where wBTC has struggled. “Staking yield, once live, will make LBTC a highly attractive asset, comparable to ETH staking rates,” he said.
The Road Ahead
Lombard Finance raised $16 million this summer from leading investors, including Polychain Capital and Franklin Templeton. Philips noted that crypto-savvy investors are particularly receptive to the Bitcoin staking pitch.
“Our goal is to encourage Bitcoin holders to step into on-chain finance,” Philips said. “Even if yields fluctuate, LBTC’s ability to generate any yield positions it as an attractive asset.”
With a growing appetite for yield-bearing assets and increasing institutional interest, Lombard Finance’s LBTC could play a pivotal role in reshaping the DeFi collateral landscape.
