New Utility for Bitcoin with LBTC: The Security-First Bitcoin Primitive

In this article, Lombard explores how LBTC, a new liquid Bitcoin primitive, is set to revolutionize Bitcoin’s utility. By leveraging Babylon’s secure staking infrastructure, LBTC transforms Bitcoin from a static store of value into a dynamic financial tool capable of generating yield and participating in decentralized finance (DeFi) across multiple blockchain ecosystems. Discover how this innovative approach not only enhances Bitcoin's functionality but also paves the way for its broader adoption across the entire ecosystem.

Introduction

Lombard is on a mission to expand the digital economy by transforming Bitcoin’s utility from a mere store of value into a productive financial tool. While Bitcoin remains the world’s largest crypto asset, with over $1 trillion worth of Bitcoin often sitting idle, its utility is limited compared to other digital assets. Lombard sees a significant opportunity to change this by connecting Bitcoin to decentralized finance (DeFi).

If just 10% of Bitcoin's $1.5 trillion market cap flows into DeFi, the total value locked (TVL) in the ecosystem could more than double, catalyzing unprecedented growth and enabling sustainable market dynamics over time. Lombard believes this potential can be unlocked through a security-first liquid Bitcoin primitive — LBTC.

The State of Bitcoin

Bitcoin has long been heralded as "digital gold," serving as a robust store of value and a hedge against inflation. Its decentralized nature and security have made it the flagship cryptocurrency, with a market cap over $1 trillion that dwarfs all others. However, despite its dominance, Bitcoin's utility within the broader crypto ecosystem has remained limited. Unlike Ethereum, Bitcoin's architecture has not lent itself easily to more complex financial applications, such as DeFi, where other cryptocurrencies like USDC, USDT and Ethereum have thrived.

Bitcoin’s current use case primarily revolves around holding and transferring value, with less emphasis on generating yield or participating in decentralized financial markets. This limitation has led to a significant amount of Bitcoin remaining idle, missing out on the opportunities that more flexible assets like Ethereum can capitalize on within the DeFi space.

What’s Holding Bitcoin Back?

One of the key factors holding Bitcoin back is its simple scripting language. Bitcoin's Script is non-Turing complete, meaning it cannot support complex logic or smart contracts like Ethereum. While this design choice enhances security and stability, it also limits Bitcoin’s functionality within more advanced decentralized applications. As a result, Bitcoin has not been able to fully participate in the vibrant DeFi ecosystem, where more complex scripting and contract capabilities are required.

Another factor is Bitcoin's Proof of Work (PoW) consensus mechanism — while highly secure, is resource-intensive and less adaptable compared to newer Proof of Stake (PoS) systems. PoW requires significant computational power and energy consumption, which not only limits scalability but also restricts Bitcoin's integration into other blockchain ecosystems. PoW’s design focuses on security and decentralization at the expense of flexibility and efficiency, which has constrained Bitcoin’s broader utility in a rapidly evolving crypto landscape.

Babylon and Lombard Bring Utility and Liquidity to Bitcoin

Bitcoin’s immense economic value can now be harnessed to secure PoS networks. Babylon’s Bitcoin Staking Mainnet launch represents a major milestone. Babylon enables Bitcoin to be staked in a trustless and self-custodial manner, allowing BTC holders to contribute to the economic security of various PoS systems, including PoS chains, Layer 2 (L2) rollups, and Data Availability layers. By staking Bitcoin through Babylon, users can maintain full control of their assets while earning rewards and reinforcing the security of these networks. Bitcoin staked directly to Babylon is illiquid, and that’s where Lombard comes in.

LBTC, Lombard’s liquid Bitcoin, interacts directly with the Babylon protocol, allowing staked Bitcoin to remain liquid and usable within the DeFi space. This integration not only unlocks new utility for Bitcoin holders — enabling them to earn yield, stake, trade, and transfer their assets — but also enhances the security of PoS networks. Through Babylon, Lombard’s LBTC bridges the gap between Bitcoin’s immense economic value, security capabilities, and the dynamic opportunities within PoS and DeFi ecosystems, marking a transformative phase for Bitcoin in the decentralized economy.

About LBTC; the new Security-First Bitcoin Primitive

LBTC is designed to empower anyone — from individual holders to large institutions — to amplify the utility of their Bitcoin. It allows users to earn a native yield, participate in DeFi, and much more, all while maintaining the security and liquidity of their assets. Here’s five key points relating to LBTC:

Yield-bearing Bitcoin: Unlock Native Yield & Rewards with LBTC

If you've enjoyed the benefits of platforms like EigenLayer, you'll find LBTC's yield-earning capabilities even more compelling. BTC deposited into Lombard is staked into Babylon, earning a yield while remaining liquid for use across DeFi. This makes LBTC a universal product, ideal for all Bitcoin holders seeking passive returns in a low-risk manner through staking.

Seamless DeFi Integration: Liquid and Versatile LBTC

LBTC is the perfect DeFi collateral. Use all your favorite DeFi protocols (Pendle, Morpho, Gearbox, etc.), but this time, with BTC. LBTC introduces a new level of capital efficiency by allowing Bitcoin to remain productive while also staying liquid. Bitcoin holders will be motivated to move their assets out of cold storage and into active use in lending pools, yield vaults, and trading platforms for additional rewards.

Flexibility: Cross-Chain Accessibility with LBTC

Lombard allows users to natively mint their Bitcoin on a network of their choosing and trustlessly transfer it across different ecosystems. With LBTC, Bitcoin can be used across a wide range of blockchains, including Ethereum, Solana, and Cosmos, transforming each into a Bitcoin DeFi ecosystem. By making LBTC natively available across multiple blockchain networks, Lombard unlocks Bitcoin’s potential, reduces fragmented liquidity, enhances market efficiency, and enables seamless movement across ecosystems.

Secure by Design: Industry-Leading Protection for LBTC

Security is at the core of LBTC’s design, making it the most secure primitive in the Bitcoin ecosystem. Lombard has overcome Bitcoin’s programmability limitations by collaborating with Cubist, a group of cryptographers from Stanford and Carnegie Mellon, to implement industry-standard key management and signing infrastructure. Lombard’s unique Security Consortium validates every transaction on the protocol, ensuring LBTC’s security is unmatched. The architecture is further reinforced through multiple third-party audits and real-time security monitoring, detecting and mitigating threats before they materialize.

Trust-minimized Innovation: Decentralized Infrastructure for LBTC

Lombard is committed to building trust-minimized infrastructure from day one. The Security Consortium ensures there’s no single point of failure, with multiple independent parties validating transactions on the Lombard protocol. LBTC operates without trusted middlemen, offering full transparency and community-led governance. The permissionless nature of LBTC allows any DeFi platform to integrate it without requiring centralized approval. Multi-party approvals and time locks for governance decisions further minimize counterparty risk, ensuring LBTC’s integrity within the ecosystem.

LBTC represents a transformative innovation in the Bitcoin ecosystem, expanding its utility far beyond its traditional role. By enabling yield generation, enhancing liquidity, and securing decentralized networks, LBTC is poised to revolutionize the way Bitcoin is used in the digital economy. Through Lombard’s collaboration with Babylon, Bitcoin is entering a new era—one where its potential is fully realized within the DeFi space, offering unprecedented opportunities for growth and sustainability.

How LBTC Works

LBTC is designed to seamlessly integrate Bitcoin into the decentralized finance (DeFi) ecosystem while maintaining the security and integrity of the underlying asset. Here’s how the process works:

1. Deposit BTC on the bitcoin network The journey with LBTC begins with users depositing their native Bitcoin via the Lombard WebApp. Deposits are possible from any bitcoin address or any bitcoin wallet including DeFi wallets, hardware wallets or any centralized exchange. For more details, please see our Staking BTC doc.

2. Stake BTC in Babylon Once deposited, the Bitcoin is staked into Babylon’s secure staking infrastructure by Lombard. Lombard manages all fees associated with staking to Babylon on behalf of Lombard users.

3. Mint LBTC on Ethereum After staking, users can mint LBTC tokens equivalent to the amount of BTC staked, to a pre-selected Ethereum address. As the Bitcoin remains staked within Babylon, the staking yield accrues directly to the LBTC tokens, offering a continuous reward to the holders without compromising liquidity.

4. Use Across DeFi, On Any Chain LBTC’s power lies in its versatility. The token can be deployed across multiple blockchain ecosystems, making it accessible on various chains such as Ethereum at launch, and even Solana, and Cosmos overtime. Despite being transferred and used across different networks, LBTC maintains its 1:1 BTC backing, ensuring that it remains as secure and valuable as the original Bitcoin.

In conclusion, LBTC represents a transformative innovation in the Bitcoin ecosystem, expanding its utility far beyond its traditional role. By enabling yield generation, enhancing liquidity, and securing decentralized networks, LBTC is poised to revolutionize the way Bitcoin is used in the digital economy.

To achieve this, Lombard is implementing a phased rollout strategy to make LBTC widely accessible across the DeFi landscape. Initially, LBTC will launch on Ethereum mainnet, where the bulk of Bitcoin liquidity and blue-chip protocols currently reside. Following this, Lombard plans to expand LBTC to Ethereum Layer-2 networks, and eventually to innovative Bitcoin Layer-2s and next-generation blockchain networks.

This strategic approach ensures that LBTC can quickly integrate into existing ecosystems while paving the way for broader adoption across the entire crypto space.

For those interested in the technical specifics, please visit Lombard’s documentation.