Key Points:
- Most DeFi collateral is currently Ether and its derivatives.
- Lombard Finance is introducing a bitcoin yield-bearing token named LBTC.
- LBTC intends to address the limitations faced by wrapped bitcoin (wBTC).
A fierce competition for dominance in the decentralized finance (DeFi) sector is emerging. The central inquiry revolves around which assets will become the primary collateral in this new financial landscape.
Current statistics show that DeFi platforms have locked in approximately $126 billion in total value, inching closer to the previous high of $175 billion set in 2021. The assets primarily involved include Ether (ETH) and other derivatives such as staked ether liquid tokens (stETH) and wrapped eETH (weETH), whereas wrapped bitcoin (wBTC) lags behind.
Lombard Finance aims to shift this trend with LBTC, a newly developed liquid bitcoin token. According to Jacob Philips, co-founder of Lombard, the goal is to establish bitcoin as the collateral of choice across the DeFi economy.
“At centralized platforms, bitcoin reigns as the primary collateral. Why should it be different in DeFi?” — Jacob Philips.
The bitcoin market has seen a remarkable gain of 124% since the start of the year, fueled by favorable political developments and growing interest in spot exchange-traded funds (ETFs). Meanwhile, ether has increased by 48%, demonstrating its comparative underperformance in the same timeframe. Given bitcoin's rising demand, there's speculation regarding its potential institutional role in the future.
This shift could redefine operational mechanics within the DeFi sector.
“Bitcoin is poised to become a significant source of liquidity for all DeFi protocols. The prospect of tapping into even a fraction of bitcoin's market cap, currently near $1.9 trillion, could unlock substantial new activities within this ecosystem.” — Jacob Philips.
Yield from Bitcoin?
Unlike ether, which can be staked to earn interest, the Bitcoin network traditionally doesn’t facilitate this. Lombard intends to offer a yield-bearing bitcoin token using the Babylon protocol, allowing users to stake their bitcoins and earn from various blockchains.
The mechanics involve users staking their bitcoins with Lombard, which subsequently mints LBTC tokens equivalent to the staked BTC, compatible with Ethereum and its protocols.
As the investment pool expands, Lombard Finance potentially positions itself to disrupt the established order in the DeFi space, leveraging bitcoin's unique attributes and appeal to both centralized and decentralized finance participants.
