The new system lets institutions earn yield and access liquidity without moving Bitcoin out of custody.
Lombard on Wed., Feb. 11, launched Bitcoin Smart Accounts, a new product that allows institutions to use their Bitcoin in decentralized finance (DeFi) without moving it out of custody.
Lombard is a DeFi protocol with more than $1 billion in total value locked (TVL), according to DeFiLlama. The new product allows Bitcoin held with custodians, in MPC setups, or in self-custody wallets to be used as on-chain collateral, according to a press release viewed by The Defiant.
The process eliminates the need to transfer Bitcoin to a DeFi platform first, allowing institutions to keep their BTC in their existing custody arrangements. Bitcoin is currently trading at $67,615, down 1.5% on the day, per CoinGecko.
The product targets roughly $500 billion in Bitcoin that is currently held in professional custody by asset managers, corporations and high-net-worth individuals. Most of that Bitcoin does not currently participate in DeFi because transferring assets can create legal, operational or security risks.
“For 17 years, institutions could have the security of top custodians, or they could have on-chain utility — never both,” said Jacob Phillips, co-founder of Lombard. “Bitcoin Smart Accounts are a settlement network, similar to that of SWIFT and ACH, that eliminate that trade-off, and allow Bitcoin to stay in custody and settle on-chain, transforming Bitcoin from a passive asset into usable capital.”
How it Works
Institutions begin by adding a Smart Account designation to their existing custody setup, according to Lombard. Their Bitcoin is then recognized on-chain through a receipt token called BTC.b, which represents the held BTC.
The underlying Bitcoin remains with the custodian at all times, the company said, and legal ownership does not change.
Furthermore, the product will launch with Morpho, a lending protocol with more than $5.7 billion in TVL (and the seventh-largest protocol by TVL), according to DeFiLlama. Through the integration, Bitcoin held in custody can be used as collateral in Morpho’s lending markets.
This allows institutions to borrow against their BTC or potentially earn yield without transferring the underlying assets out of custody.