Lombard: Can the Bitcoin re-staking agreement trigger trillions of dollars in funds?

Hello everyone, I’m Paul from Coinmanlabs, today I want to talk to you about Lombard.

Only value storage

Since its inception, Bitcoin has been defined as "digital gold". Similar to gold, its main function is to store value. Although the concept of Bitcoin-related ecology has existed for a long time, the development of Bitcoin's ecology has been stagnant for more than a decade.

Bitcoin is a value storage tool mainly because it has the following characteristics:

1. Scarcity: The total amount of Bitcoin is set at 21 million. This fixed supply makes Bitcoin scarce. Scarcity is an important feature of traditional value storage tools such as gold because it prevents depreciation caused by excessive issuance of currency.

2. Decentralization: Bitcoin is not controlled by any central authority, which means it will not be affected by government monetary policy, nor will it depreciate due to an economic crisis in a particular country. This decentralized feature makes Bitcoin have a certain value stability around the world.

3. Security: Bitcoin uses advanced encryption technology to protect the security of transactions and assets. The immutability and transparency of blockchain technology enable the Bitcoin network to resist problems such as fraud and double spending.

4. Global liquidity: Bitcoin can be quickly transferred around the world without being restricted by geographical and political boundaries. This high liquidity makes Bitcoin an effective tool for cross-border value transfer.

5. Anti-censorship: Bitcoin transactions are recorded on the blockchain, but the identity of the user is anonymous. This feature makes Bitcoin a tool to circumvent censorship in some countries and regions that have strict censorship of financial transactions.

6. Long-term appreciation potential: Since its inception, the price of Bitcoin has experienced significant growth. Despite the volatility, Bitcoin's value has shown an upward trend over the long term, which has attracted some investors to it as a long-term investment and store of value.

Q. Bitcoin cannot reach its full potential?

As a decentralized digital currency, Bitcoin has gained a certain degree of recognition and use worldwide since its birth in 2009. However, despite its many potential advantages, such as decentralization, high security, and good transparency, Bitcoin still faces some challenges and limitations in large-scale application. Satoshi Nakamoto originally envisioned Bitcoin as a peer-to-peer electronic cash system in which decentralized digital currency can be used as a medium of exchange.

We all know that currency as a medium of exchange is a basic function in economic activities. The emergence of currency has greatly simplified the transaction process and improved economic efficiency. Of course, it is time for Bitcoin to be used as a medium of exchange.

With the passage of Bitcoin ETF, more traditional or technology companies will use it as company assets or treasury assets.

According to statistics, there are more than $1 trillion worth of BTC in idle state. We can see several reasons for this:

1. No native income: Unlike ETH, which is subject to the staking economy, BTC currently has no low-risk source of income (such as stable staking mining, LST, LRT, etc.).

2. Lack of cross-chain composability: Security is the top priority for any product or asset, so the current method of using BTC in DeFi compromises in terms of security and decentralization.

3. Liquidity dispersion: Currently, the liquidity of BTC is very dispersed. For example, various packaged tokens that we often see have no usage scenarios.

4. Insufficient DeFi acceptance: Currently, more DeFis still choose to accept products such as ETH and USDC as their first choice.

Currently, Bitcoin is the largest cryptocurrency by far in terms of market capitalization, liquidity, and institutional adoption. The infrastructure to kill Bitcoin is in place, native DeFi will continue to exist (BRC-20, runes, ordinals, inscriptions, OP_CAT, etc.), and the market also needs new narrative points, just like ETH's DeFi in early 2020.

Lombard

Project website: https://www.lombard.finance/

Twitter: https://x.com/Lombard_Finance

Project Introduction: Founded in April 2024, Lombard is committed to unlocking the potential of Bitcoin as a dynamic financial instrument by connecting Bitcoin to DeFi. Lombard enables yield-bearing BTC to move across chains without dispersing liquidity, paving the way for becoming the biggest catalyst for the introduction of net new capital into DeFi. Its flagship product, LBTC, is a yield-bearing cross-chain liquidity Bitcoin backed by BTC at a 1:1 ratio.

Project Analysis

Q. As a Bitcoin holder, what do you care about most?

There is a joke in the cryptocurrency world: "You want people's interest, but they want your principal." Therefore, safety is the most important thing in the cryptocurrency world. People would rather not make interest than lose money, and this is especially true for Bitcoin.

system structure

The whole process can be divided into two categories:

• Staking BTC on the Bitcoin blockchain

1. Staker requests a new or reuses a BTC address created by Consortium for the chosen blockchain and then transfers BTC to that address.

2. The backend processes the transfer and once the transfer is confirmed, it requests the Consortium to notarize it.

3. Staker receives the notarization data (RLP encoded data: uint256 chainId, address, uint64 amount, bytes32 txId, uint32 index; and signature: keccak256 hash of the data signed by the Consortium threshold key) and calls the mint transaction to get its LBTC.

4. The Consortium selects a final provider to stake the BTC, builds an appropriate Babylon consumable stake transaction, and signs it using CubeSigner.

• Cancel the pledge of LBTC (not supported yet)

1. Staker destroys LBTC tokens on the specified blockchain.

2. The backend processes the destruction transaction (finds it on one of the blockchains with LBTC and waits for the transaction to be confirmed), and then requests verification from the Consortium.

3. After verification, the Consortium unstakes the specified amount of LBTC from the selected final provider and sends a BTC transaction to the address passed to the destruction transaction. For withdrawal transactions, the Consortium constructs a transaction in the correct format and signs it with CubeSigner.

4. CubeSigner checks the security policy and requests manual approval of the transaction from Consortium members if the daily/weekly limit for withdrawals has been reached or the transaction looks suspicious.

There are two important roles here: Consortium and CubeSigner.

Consortium literally means alliance, a decentralized state machine used to share ownership and manage assets among members. In fact, to a certain extent, Consortium also has a certain degree of censorship resistance. It can manually confirm transactions, perform threshold voting signatures, etc., and choose the most beneficial service provider to pledge to obtain benefits.

CubeSigner is a hardware-supported non-custodial key management that mainly solves the trade-off between the security and availability of current keys.

Coinmanlabs Thinking

1. There are few narrative points in the market at present. Even though BTC’s ETF has been approved, the market is still very cold. If the glory of DeFi can be reproduced on BTC, LST is a point worthy of attention.

2. Lombard is also invested by a large institution and is worthy of early attention. However, it is currently cooperating with Babylon to form LRT (at present, it is). As for the specific DeFi, it still needs to be observed.