Lombard aims to bridge institutional Bitcoin custody with decentralized finance
The new offering enables financial institutions to leverage custodied Bitcoin as collateral in onchain markets while maintaining asset ownership and custody arrangements, with Morpho serving as the first liquidity provider.
Lombard has announced its intention to introduce Bitcoin Smart Accounts, a solution engineered to enable institutions to utilize Bitcoin held in custody as collateral in onchain markets without relocating the underlying asset or relinquishing control to external parties.
Based on a statement provided to Cointelegraph, once the product goes live this quarter, Bitcoin held in institutional custody will receive onchain recognition via a receipt token called BTC.b, which will allow institutions to participate in lending and liquidity markets while maintaining legal ownership and their current custody infrastructure.
The company explained that the framework is aimed at asset management firms, corporate treasury departments and other institutional Bitcoin (BTC) holders whose holdings currently sit dormant in qualified custodial accounts. The firm is conducting pilot programs with selected institutional partners, although specific client identities and transaction figures have not been made public.
Bitcoin inherently lacks native yield generation capabilities, a limitation that has resulted in massive quantities of the cryptocurrency remaining inactive when compared to proof-of-stake blockchain networks. This situation is starting to evolve as an expanding array of protocols attempt to activate custodied Bitcoin for onchain utilization.
Seeking to unstick Bitcoin
Jacob Phillips, co-founder of Lombard, explained to Cointelegraph that decentralized exchanges currently represent a significant portion of cryptocurrency trading volume, with approximately half of all lending and borrowing activities already occurring onchain. Phillips said:
But Bitcoin has been stuck. You've got roughly $1.4 trillion in BTC sitting idle, with only about $40 billion active in DeFi. Until now, if you wanted to put your Bitcoin to work onchain, you had to wrap it or move it into centralized services, which meant giving up the custody security institutional holders require. That's the problem we're solving.
Morpho has been designated as the first liquidity partner for the initiative, with plans to incorporate additional onchain protocols and custodial provider integrations in the coming months.
According to Phillips, Morpho was chosen based on its institutional-oriented lending platform and proven track record supporting isolated Bitcoin-collateralized lending products, noting that Bitcoin Smart Accounts are structured as open infrastructure instead of a proprietary integration, which enables Lombard to incorporate additional DeFi protocols as market demand develops.
Established in 2024, Lombard specializes in developing Bitcoin-centered onchain infrastructure and tokenized products, including LBTC and BTC.b, which are designed to facilitate Bitcoin usage in DeFi environments while keeping assets in custody, according to the firm.
New products aim to put idle Bitcoin to work
On May 1, Coinbase, the United States-based cryptocurrency exchange, introduced the Coinbase Bitcoin Yield Fund, which targets institutional investors outside the US with a projected annual net return ranging from 4% to 8% on their Bitcoin positions.
Several months following that launch, Solv Protocol unveiled a structured yield vault tailored for institutional participants, built to allocate dormant Bitcoin across diverse yield-generating strategies that span decentralized finance, centralized finance and conventional markets. The BTC+ vault from Solv incorporates strategies including protocol staking, basis arbitrage and participation in tokenized real-world assets.
On Feb. 4, Fireblocks, a provider of institutional cryptocurrency infrastructure solutions, announced plans to integrate Stacks, which will provide its institutional clients with access to Bitcoin-based lending products and yield-generating opportunities.