Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Lombard: Unlocking Bitcoin DeFi Through Liquid, Yield-Bearing LBTC - Jacob Phillips

Episode Date: June 16, 2025

Bitcoin remains an untapped source of net-new liquidity that could be injected into DeFi. This would completely reshape Bitcoin’s utilization from a mere store of value to a liquid asset that can be ported cross-chain and traded like a liquid staking derivative. Lombard’s LBTC builds upon Babylon’s Bitcoin staking primitive and aims to unlock new yield sources for the industry’s leading asset by increasing its DeFi utilization.Topics covered in this episode:Jacob’s backgroundLessons gathered from PolychainFocusing on BitcoinWhy Bitcoin staking is crucial for BTC DeFiBuilding on top of BabylonLBTC mintingSources of BTC yieldPoS inflation and native token incentivesBTC as a trading pair in DeFiLombard chainFuture challenges to overcomeBitcoin L2sLombard milestonesEpisode links:Jacob Phillips on XLombard on XBabylon on XSponsors:Gnosis: Gnosis builds decentralized infrastructure for the Ethereum ecosystem, since 2015. This year marks the launch of Gnosis Pay— the world's first Decentralized Payment Network. Get started today at - gnosis.ioChorus One: one of the largest node operators worldwide, trusted by 175,000+ accounts across more than 60 networks, Chorus One combines institutional-grade security with the highest yields at - chorus.oneThis episode is hosted by Brian Fabian Crain.

Bitcoin never got anywhere close to like fruition or critical mass, I think at that point. And you never really saw any of the big defy protocols in the ETH space care too much about Bitcoin, right? And at the end of the day, it's like in the ETH ecosystem, Bitcoin will probably always be a little bit of a second class asset. But fast forward, you know, three, four years later, you had Bitcoin culture shifting towards accepting expressivity. You had big developments in trustless Bitcoin technology that allows for us to see the, the light at the end of the tunnel for a true, like, fully non-custodial Bitcoin ecosystem. And you saw the implementation of early defy native mechanisms directly on Bitcoin L1, inscriptions being the big one that sort of created the first little casino like frenzy upon Bitcoin,

which got people excited about, like, envisioning what else could be built upon Bitcoin. This was the first time people were like, oh, shoot, maybe we can, maybe this defy thing is actually good for Bitcoin. And then Babylon was the big catalyst for us. recognizing that the exogenous catalyst of Babylon and Bitcoin staking was going to be the core force for distributing Bitcoin throughout Defi. Welcome to Ep Center, the show which talks about the technologies, projects, and people driving decentralization and the blockchain revolution. I'm Brian Crane, and today I'm speaking with Jacob Phillips, who is the co-founder of Lombard. Lombard is one of the best projects in the Bitcoin DFI area.

They have liquid staking asset, LBTC, that has gotten a lot of traction. So I'm really excited today to speak with Jacob about Lombard and about Bitcoin DFI and his journey more generally. So thanks so much for coming on, Jacob. Yeah, definitely. Thanks for having me. Yeah. So just before we start with Jacob, we want to share a few words from our sponsors this week.

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So I'm curious, sort of let's start at the beginning. I think you started in traditional finance and then sort of transitioned into crypto. Like how did he end up working in crypto? Yeah, something like that. I think I interned to traditional finance. Maybe that was the closest I ever got. But yeah, I mean, the way of frame it was like, I was always going to be a debater in some form.

Like I grew up arguing with my dad and then I was debating in high school and then I thought I was going to go to politics and like write policy. But at some point, you know, I think I kind of came to my senses and like the real way to change the world isn't by, you know, going to work for a think tank. It's actually by getting involved in financial markets because economics runs the world. So I started a MECON degree, decided it got really into the stock market, decided it was going to become like go work at a hedge fund or become an investor at some point, like an equity researcher. And at some point, it was like I went fully down that path. I, you know, did like a really cool

investment banking internship in New York, you know, my junior year. And after I had like locked that down, which was, you know, the grind of all grinds, you know, so much time in the fall to try and get these interviews and lock that down. I then had like all this time in my hands and started just serendipitously sort of researching startups because I knew nothing about them. Like I grew up in Eastern Iowa. We don't have technology there. And then I went to school in Cleveland. They don't have technology there. So I just sort of started exploring this. I was reading about all these like, you know, 25 year olds building really cool companies and then selling them for hundreds of millions of dollars and doing real cool things. And it was like, damn, you know, I don't really

feel like I have any other skills besides rearranging shapes on PowerPoint. Maybe I should go figure out how to do that. So I started a CS degree, knew I was going to go all the way down technology in some form. The only way I knew how to like get into tech was to go to VC. I was already researching. stocks. It's like, okay, maybe I'm just researching a little bit of smaller businesses. So I was trying to get a job at a VC fund, got a gig at a small one in Cleveland. Cleveland. Like I said, doesn't have a great technology scene, but they were trying to make a move into crypto, as was everybody at that time, well, blockchain, I guess. And there was like a publicly funded blockchain fund that was launching there. And I got it, I like pitched them a crypto company in my

interview because I thought they wanted to hear that. And they ended up staffing me on the on the blockchain fund. And the rest was kind of history from there. I mean, this was like late 2018. There was already so much progress in the Bitcoin's, well, in the crypto space generally to the point where it felt like it was past the point of no return. So I guess my options were going to traditional finance and, you know, work for someone's boss's bosses, boss is something like that. You know, maybe I'd be an intern still at this point. Or I could go try something new, something nobody knows anything about and something that felt like it was going to be the next big thing. And so, you know, kind of dropped everything, spent a full year researching crypto, interned for a couple

different funds and then ended up making my way out to to Polychain after graduation, which is really cool. So that was like a year of grinding, just basically spending full-time researching crypto just with the goal of trying to get somebody to hire me to research crypto professionally. And then, yeah, ended up in Polychain. Defi Summer kicked off. I, you know, sort of had a little bit of an edge because I've been researching defy as much, if not more than anybody else, you know, in the investment scene. So that sort of became a little bit of my niche, ended up leaving Polly Chain after just about three years to join a DFI studio that ended up building a PURPS protocol, and then ultimately ended up starting Lumpart. So that's kind of the story.

So Paulechane, of course, is pretty much one of the most legendary crypto investment firms. what were the main things you learned from there that sort of shaped your thinking? Oh, that's a good question. I learned a lot from Polly Chain. One was that I wasn't quite as smart as I thought I was when I first joined. So I had spent a whole year researching what all the best projects were in the space. And then the second, you know, the first like two or three months I was at Polly Chain, I basically realized that everything that I was researching was just not quite the state of the art.

And it was basically like the perception of projects and builders is not always the same as what's happening behind the scenes. So to be a VC and have a privileged, a privileged look at like, you know, how people are viewed. You kind of get to see people to more real level when you get to see excellent builders every single day. When you don't see build like, you know, top tier builders every day, it's a little bit hard to decide like what a top tier project is and what a top tier like team looks like. When you are seeing all of these, you're able to develop much more, much more specific, I guess, trends of like what those look like. So I think that definitely changed my thinking. Polly Chain had a lot of characters on the investment team. People, like a ton of people who thought very differently than I.

And so I think I learned a lot from that. People were focused more on technology, some focused more on distribution, some focused more on dealmaking. So I think I learned a lot from a lot of different folks there. And overall, I mean, I think, you know, investing and building are two very, very different crafts that have different motivations and different aims. And I think in my transition to being a builder, I take away a lot of the lessons from like what worked or didn't work in the investment landscape and are sort of applying those practically. In some ways, you know, because I started out as an investor working at, you know, like you said, like one of the best in the space, but with a very narrow, mandate, which is like, you know, Polychain writes seed checks, but then for it to have any impact on the fund, this basically has to like a thousand X or something like that. So really

shooting for like the home run of home runs, I think can, it both is beneficial into thinking about like, you know, where the space is headed. Polychain's kind of internal model was see the future first. So I think that certainly trained my mindset of like, if you're going to build anything, it has to be something forward looking. If you're trying to build in the here and now, you're going to be too competitive with everything else. But I also think it sort of shaded my viewpoint into being a little bit too idealistic, which was something that it took me, you know, a few months, I think to shake as a builder. I wrote a lot of, you know, I wrote research both internally and externally a polychain.

And I look back on a lot of those posts that were like, you know, telling, um, telling builders to do super, super complex distribution like air drop mechanisms and to, you know, hold off on a token until they're like 15 years into the project. and they know for sure they have product market fit. And now I realize that the way that the space operates as a builder is much different. Or rather, like, the things that matter to projects and builders are not always the same things that matter to the VCs. So I've changed my mind on a lot of things that I had once learned at PolyChint.

I think I've, you know, shook a little bit now. Okay. I want to ask about that. But first I want to ask about another thing you mentioned here. So you said you kind of learned what, you know, what sort of top tier, companies and teams look like and how they function, what were the main things you took away from there that you were like, okay, if I'm going to be an entrepreneur

and like I'm going to build something like, you know, I really want to make sure that like I nail these things. Yeah, it's a really good question. And I would say it's easier to tell anecdotally than it is to like prescribe this a bit. Like even I'm like going to struggle to articulate exactly what it is. but you know it when you see it. I think that's the biggest thing. So, like, a coherent vision, I think is, is first and foremost. Like, it's, it's pretty clear if someone has, has a clear vision or doesn't have a clear vision. And I think all of the best pitches, I mean, it's basically

like, if we left a pitch blown away, like we learned something brand new that it was, that, that is usually indicative of a top tier founding team. If not, it usually means that these people are, you know, I don't know, capturing a short-term opportunity or maybe not the best suited. And I think maybe the other most significant telling signs. So it's like coherent vision plus like rockstar team. It's basically like if you look at these folks and, you know, you kind of look at not maybe not even just the founders, right? The founders are usually quite strong. Otherwise, you know, they wouldn't be able to go out and raise money or have conversations with big funds in the space. But I think it's even more interesting as like what is their first, second, third, fourth hire?

look like. The best teams come to us with a pitch deck. Like, I used to just pull up the pitch deck. And for some reason, everybody puts the team slide at the very end. It really should be like at the front. I would just skip all the way to the very end, look at the team. And if the team is great, then it's like probably a good investment. If not, I should probably read the deck and, you know, learn a little bit. And that's about it. So that was always really important. And honestly, how would you judge? How would you judge when a team is great? Yeah. Well, I, this actually ties in perfectly to the point I was just about to make, which I don't know that I learned this team perfectly when I was at Polly Chain, but I definitely have learned it now being on the builder side,

which is the team has to have some sort of edge. There has to be a reason, like, any opportunity that is big enough is eventually going to have a ton of competitors flow into the space. And the question is, is like, what is fundamentally differentiated about these folks attacking this problem versus someone else? And it can be, it can be a number of things, right? It can be like They have a technical background that is second to none. They have relationships with institutions or capital that couldn't be recreated. That is the big question is like, is there something very specific to this group of builders that allows them to execute on this opportunity or not?

And I think most of the time, even in, even among the investments that I did at Pauley Chain, most of the time the answer was there was no clear edge. It was just a group of smart people. But, you know, eventually they falter or they were on. into some situation where somebody else steps in with a little bit of a better background. So yeah, it can be experience related. It can be relationship related. It doesn't matter.

But the question is like, how do they crush the competition in the first like six or 12 months of the project? And that, that I think is pretty clear if you, if you dive in deep enough. Right, right. And then you said there, you know, a whole bunch of things. You kind of learned that polyshane and then you had to unlearn again building longbar. What were those things? I think the biggest thing was that when you are an investor, you're always thinking about

optimality. What is the perfect way to do something? When you are a builder, your entire life is operating within chaos. And so, like, I talked about the airdrop mechanisms and like optimal token distribution. I wrote and thought a lot about this. And in retrospect, it was like simplicity, like for builder, simplicity is key, not completely. complexity, right? Like, all the mechanisms that I thought up and designed were really good, ended up being complex. And more often than not, like, builder decisions are driven by, like, one primary KPI and just keeping things simple as where, you know, I always tried to make things a little bit too theoretical and complex on the, on the, on the investment side. And this is, you know, this is another thing of like, look, investors, of course, love to do victory laps after things go the right way. But more often than not, it's a little bit of a guessing game at that point. Right. you're doing a siege state investment.

You're, like I said, you're skipping to the team slide. You're doing a little bit, you're making like a little bit of a judgment, seeing if there's a big enough outcome here, taking a little bit of a bet, and you'll be surprised.

I will say like the deals that Polly Chain did the best on when I was there. Most of those I would describe as like a notable degree of, of luck in a sense that we probably wouldn't have necessarily, uh, bet all of our marbles on those being the successful outcomes. But, you know, that's kind of the name of the game. All the best outcomes came from those surprises. And it was only because there was a surprise there that it ended up having the opportunity to be that big of an outcome.

So, and yeah, I mean, on the builder's side, I think everything is about, like, making practical solutions. Had I gone out and tried to build some of those like air drop and token distribution mechanisms that I prescribed for builders back in the day. And actually, like, I told I told builders this, right? like Jacob who had just graduated from school and had been investing for a year was sitting there on calls, advising founders and how to build their business. This just never made sense even a little bit. So it's good that I went and got some, you know, started doing this myself and now can hopefully provide some better advice. Hopefully I'm a better VC now than I was back then. But all of the mechanisms that I had like thought up in my head were just there's no way you were going to convince an engineering team to like go through all that effort.

Because at the end of the day, it's like, the 80-20 rule of like getting most of the way there without wasting a time is like the name of the game. And maybe the last thing real quick is like there were so many problems I was thinking about that just aren't that big of problems. Right. It's like, like, oh, what is the optimal token use case? And it's like, I don't know. Just get some simple done and keep building the business. Right. Like the most important thing is product. It's not all of these like minute decisions that investors have a lot of time to sit around and think about. And so with Lombard, you obviously focused on the Bitcoin space. Why did you decide to work on Bitcoin? So I had been very deep into DFI since DFI summer, right?

This was kind of the first place that I found my edge, at least as a researcher. I had invested in a protocol called Badger Dow back in the day when I was at Polly Chain. that was sort of one of the early attempts to onboard Bitcoin into existing DeFi ecosystems in the midst of that investment. We had done a full deep dive on everything that existed. And Badger was probably the best at that time. I got excited about Bitcoin because it felt like the timing was finally right. So with the concurrent, it's sort of like all the stars were aligning.

Back in Defy Summer 2020, some people got excited about WBTC. There was Badger Dow. there was like a brief little phase on rootstock. I think that got people excited, but Bitcoin never got anywhere close to like fruition or critical mass, I think at that point. And you never really saw any of the big defy protocols in the East space care too much about Bitcoin, right? And at the end of the day, it's like in the Heath ecosystem, Bitcoin will probably always be

a little bit of a second class asset. But fast forward, you know, three, four years later, you had, you had Bitcoin culture shifting towards accepting expressivity. You had big developments in trustless Bitcoin technology that allows for us to see the light at the end of the tunnel for a true, like, fully non-custodial Bitcoin ecosystem. And you saw the implementation of early defy native mechanisms directly on Bitcoin L1, inscriptions being the big one that sort of created the first little casino like frenzy upon Bitcoin, which got people excited about like envisioning what else could be built upon Bitcoin. first time people were like, oh, shoot, maybe we can, maybe this defy thing is actually good for

Bitcoin. And then Babylon was the big catalyst for us. So, you know, we were close with the Babylon team. We had, Polly Chain was a C round investor in, in Eiglare and then led the Babylon Series A when they were going from timestamping into a staking protocol. And just sort of ended up being the perfect opportunity to take up a big, a big stake in that ecosystem, recognizing that the exogenous this catalyst of Babylon and Bitcoin staking was going to be the core force for distributing Bitcoin throughout Defi. So Bitcoin staking, I think, is a super powerful primitive and onboarding mechanism. I didn't necessarily wake up every morning thinking that like, you know, Bitcoin staking is going to be the future. Or certainly that wasn't what got me out of bed.

What got me out of bed was the idea that like for the first time ever, there's a reason for you to use Bitcoin and Defi. And sure enough, that kind of happened, right? Like you saw Pendle and Morpho in Gearbox and Avae and Etherfi, like the largest DeFi protocols in all of the game, totally re-architecting their go-to-markets to focus on Bitcoin as opposed to some other asset. And you saw some of the biggest chains in the game basically say, look, I'm never going to be competitive with ETH. There's this multi-trillion dollar asset sitting entirely idle. I should be going after that capital. So all of this was sort of the impetus for getting us excited about doing this.

And like I said, I mean, when it goes back to Edge, the time. timing was just right. We were hitting the market in stride at the right time. LBTC launched as this killer product yield-bearing Bitcoin that created the catalyst for people to care about Bitcoin and Defi. Projects loved it. I mean, it followed up on a lot of stuff that had already happened, right? Like, there was a lot of precedent for what we were building, which I think was great. Eigenlare and the sort of proliferation of LSTs and LRTs throughout Defi sort of foreshadowed what would happen in the Bitcoin space. So, yeah. I think all of that led to us getting excited about the opportunity.

So you said Bitcoin staking, you know, you saw as kind of like a core thing to unlock Bitcoin. Why? I mean, I think this has kind of happened time and time again where it's like, okay, we know that Bitcoin is the prime collateral within all centralized exchanges. We know that Bitcoin is the preferred money within the ecosystem. But yet for some reason, we haven't seen it come on chain. We know why it hasn't come on chain relative to other assets, right? Like if you look at ETH versus Bitcoin in ETH, Defi, it's like, ETH is more trustless.

It is way more liquid. And it's like sort of aligned with the ecosystem. So it's no surprise that Bitcoin hasn't been able to like get up to some, some critical thresholds, right? Similarly, you know, we've always known that there's been a fundamental thesis for yield-bearing tokens within DFI. I mean, there's like a, the classics, there's the post from Dan Ellister back from like 2019.

You know, 2018, 2019, people knew that this was ultimately going to come to fruition, but it took until there was a sufficient catalyst in the form of eigenlayer points that then did you see every defy protocol in the game be like, okay, I'm going to stop building on ETH, and I'm going to prioritize STEth and LRTs, because these are actually the growth mechanisms for my DeFi protocol. So seeing that play out, I think, beautifully foreshadowed what would happen if we did the same for Bitcoin, right? Like, Bitcoin should be the fundamental collateral in on-chain finance. It isn't yet.

What are we missing? We're missing the catalyst. As soon as that catalyst comes, then, you know, I think you'll see really exciting things happen. And that's really what's played out, right? Like Lombard went zero to a billion in like just over three months. We're the fastest yield-bearing tokens do this ever. Fassan Athena, Fass and Ethy Fass and Lido. And you saw, you know, big DFI protocols get excited about Bitcoin.

Bitcoin became cool in D5 for maybe the first time ever, which is kind of funny to say. And now everybody's excited about Bitcoin D5. So like even in the aftermath of what was an incentive-driven frenzy for an explosion of Bitcoin D-Fi in existing ecosystems, you still will see like the ripple effects of this over the course of the next two years is that this. exponentially sped up the adoption of VTC on chain. So yeah. You guys are building on top of Babylon, right?

So can you explain to me and to the listeners, right? So first of all, how does Babylon work? And then how does Lombard sort of build on top of Babylon? Great, great question. So here's what I'd say is like fundamentally Lombard is a Bitcoin bridge. we have like our flagship product is LBTC, this liquid staking token. This is now to like a $2 billion asset. I think there's like 20, a little over 20, 21,000 Bitcoin in it. And it's integrated within all the major DFI protocols. And this asset fundamentally receives Bitcoin into the

protocol, stakes it into what is the best, you know, sort of most robust Bitcoin staking protocol. The only one sort of non-custodially integrated directly on Bitcoin L1. And then a liquid representation of this is minted. So Babylon was sort of the key to this. You know, you saw the proliferous of SDE if people could stake their Bitcoin. Of course, this would be an amazing opportunity for onboarding capital, both because institutions love staking and Bitcoin is this like asset that everybody in the ecosystem seems to love. It's kind of been the onboard mechanism, the most liquid asset in the ecosystem. them. Babylon sort of came up with this fancy mechanism. So the way it works is it relies on a

little bit of fancy cryptography, which basically allows to you have a, there's sort of time locks in Bitcoin are pretty standard. And what Babylon basically realized was you could combine some fancy cryptography in the form of a one-time extractable signature and a basically like a payoff function that makes it such that users can take. this, the one-time extractable signature basically means that like you lock your Bitcoin into a vault and then that vault has a private public key pair. And so then you can use that private public key pair to then go sign block updates. I say this block is final, this block is final, this block is final, because I'm running the node of a third party chain. And if I sign two block

updates at the same height in classical terms known as equivocation or double signing, then Then through the cryptography, the private key is then revealed, and a user is able to, anybody can then use that private key to send a transaction to that vault that slashes the Bitcoin. So the only thing that can happen with the Bitcoin is it either gets returned to the user or it gets slashed. But the magic here was creating that slashing mechanism directly within Bitcoin script. So this was sort of, I guess, defy magic on chain.

maybe the one of the only sort of expressive protocols that you could build directly from Bitcoin script without additional upgrades. And I think this got everyone excited. I mean, I have said this before. I think it's probably true, which is I think that like the introduction of non-custodial staking directly on Bitcoin L1 was like maybe the fastest we've ever seen trustless technology get adopted by major crypto institutions. So I think it, It did a ton for Bitcoin Defi in that, you know, I think we were almost starting a little bit too complex. Originally, Bitcoin Defi was like, let's create Perps protocols on Bitcoin and, you know, do all this, you know, stack a ton of protocols together, do a lot of like composable defy when really people just wanted

to do something very, very simple. They wanted to take like a crypto native risk that they're very comfortable with. That's like pretty low risk and earn a little bit yield on it. So what an onboarding mechanism has been, every Bitcoin holder in the, in the world, I think, is like exploring this to some degree. So, yeah, it's been, it's been fun to work with the, with the, the, um, the Babylon team. They've been quite the force. I think they are up to like $6 billion in TVL or something like that.

They had like a billion dollars staked in a single transaction, which is pretty crazy. So you have to, you explained, I think, very well, like the Babylon mechanism, right, where like the Bitcoin gets sort of locked up. You have this key pair, right? It can then be used for, basically for signing things on other chains, right? So you can basically say, okay, now it's being used to secure other types of services. And then Lombard Bitcoin basically means now it's kind of the custody goes to the Lombard Protocol and you guys issue LVTC.

Exactly. Yeah. Yeah, and maybe it can walk through a little bit of the construction of Lombard as a protocol because there was an initial state to it and now it's evolving. So phase one of Lombard was sort of two pieces of the stack. It was a security primitive and a liquidity primitive. The idea was to build anything expressive on Bitcoin, even something as simple as liquid staking or Bitcoin Bridge. You need to create some, you basically need to like let some party on top of Bitcoin script, certify the expressivity.

So in this case, it's like, you can think of Lombard. We built this Lombard Consortium, which is a group of the largest institutions in the space. You know, OKX, Wintermute, DCG, Galaxy, Chorus One, right? Like, these are the folks who actually secure the Bitcoin. So this was an important primitive because anything we wanted to do beyond that sort of relied on this. We also worked with a group called Cubist who runs the underlying key management. infrastructure, they're sort of cryptography experts and security experts who were able to create the sort of layered security approach that we needed in order to get people comfortable

around depositing Bitcoin into this new protocol, right? And then on top of that, there is a liquidity primitive. So we minted LBTC liquid representation of stake Bitcoin. So you had these two things. They were tightly integrated. You generally just think of Lombard as LBTC. But when we break it down, it was, you know, fundamentally Lombard was a Bitcoin bridge, relying on one tightly integrated custody solution and one liquidity primitive that was distributed throughout ecosystem minted on base, on barricane, on all these other places. But when we think about this, it was like the system itself was built to be homogenous to be a really great product out the gate, but nothing about the system necessitates that it be

homogeneous. So what we're really doing right now is actually breaking this out. Lombard's goal from the beginning has been to make Bitcoin a productive asset within on-chain ecosystems. And we've done that first through a liquid staking primitive. And now we're broadening this because there's so many different ways that you could serve the exact same user base that we're serving, both on the demand and supply side. So maybe we start with the supply side.

Like one of the big things we've learned is that there are two, I guess there's like really strong demand for two different types of security. solutions. One is a fully decentralized protocol that has permissionless minting for retail, minting and burning and bridging, that anybody in the world can use, that protocols can integrate, that chains can build upon. This is like kind of the core Lombard protocol today. So that, that version of the protocol will become fully decentralized. On the other hand, there is also a massive amount of demand from the biggest institutions, biggest Bitcoin holders in the space. they want to build on what they view as the most secure, you know, Bitcoin custody tech.

And to them, that is not going to be a decentralized solution in the next like 12 to 24 months. That is Anchorage and BitGo and Coinbase custody. That is the stuff they've been using for the past like 10 years that they've been holding Bitcoin. And so because of that, in order for us to serve like the biggest use cases we're thinking about like Bitcoin staked ETF or something like that or on board. governments to on-chain finance. The only way we're going to be able to do that is if we work with qualified custodians. So there's sort of be like a dual custody approach with with sort of a shared security, rather shared liquidity primitives built on top.

And so then on top of that, you think about what you're doing, depositing Bitcoin into the protocol. It could be staked. It could be not staked. It could be restaked or lent out. I mean, there's a lot of different things you could do with the Bitcoin once it's in the protocol. Staking was the first thing.

we did, but there's many other use cases that will come from this. So, like, fundamentally, I think... And those still aggregate into LBTC, or those will be a different thing? So the liquidity primitives will ultimately be separated into multiple different primitives. So LBT will still be the core kind of risk-minimized staking primitive, but then I think there is demand for just a Bitcoin wrapper that can be permissionally limited. And you within qualified custodians. There is probably demand for like a high yield Bitcoin asset. I don't think we'll have a lot of these assets,

but you can think of it as there's probably room for a couple really great Bitcoin primitives within Defi, and we are listening to users and figuring out what those are. The simplest way to break it down is like, LBT is the perfect collateral for Bitcoin on-chain. So like the largest on-chain options trade ever was collateralized in LBT using a yield-bearing Bitcoin

to trade perps is genius because it's just, I mean, yield-bearing tokens are more capital-efficient than using naked collateral. However, there's also demand for like other types of, you know, you wouldn't want to trade perps with like really high-risk,

like high-yielding, high-risk asset. So if the yield and risk was a little bit too high, then it becomes less good collateral. Likewise, when you are, like on a decks, for example, like spot traders typically don't want to trade yield-bearing assets. I mean, you even look at like STEath. S-D-Eth has some integrations on centralized exchanges, and the trading volume is like one-tenth or something like that of NakedEath. That might not be right, but I'll double check my numbers after this.

But either way, we know that like Naked Eth and Naked assets get traded a whole hell of a lot more than yield-bearing tokens. And it sort of makes sense logically. It's like if I am trading ETH, I want to trade ETH. I don't want to trade some derivative of that that has additional risk on top. Or at least that's not what the market makers on. So there's room for assets that target different use cases. Collateral use cases probably lend better to yield bearing tokens. Trading payments and like sort of what I would describe is just like holding applications.

Like if I'm just holding Bitcoin in my wallet or like using it for something, trading payments, something like that. then a wrapped Bitcoin is probably better. And I actually think that like, you know, I think Lombard sort of proved out all of the collateral use cases through LBTC. And now we're going back to the drawing board and basically being like, look, we are a problem solver for all of Bitcoin finance. Every, every Bitcoin that comes to work on chain should come through Lombard in some form. And so if users want a wrapped Bitcoin, a stake Bitcoin or anything in between, like we

will enable their users to do that to service whatever used to. cases they're trying to do. Bitcoin trading is one that I'm personally super excited about. I feel like it's it's so obvious. Trading on Bitcoin is like trading Bitcoin on Centro's exchanges is like the number one use case for PTC probably. And almost none of that has come on chain. It's a little bit silly that it hasn't. But you're going to see, you know, the second we start seeing like the biggest shit coins that are trading on chain be traded with Bitcoin pairs, Bitcoin becomes this like on chain unit of account. You start to see spot trading come on chain. I mean, there's some, There's some president for this. I mean, we saw like, you know, Hyperliquid spinup bud,

two of three multi-sig branded as native Bitcoin on their front end and retail just ate it up. This is the kind of experience that I think Defi protocols need to create. They don't want, you know, to see LBTC on the front end. Well, maybe LBTC because of course they trust LBTC, but they don't want to see these arbitrary Bitcoin primitives on the front end that are just like, you know, 12 letters long. What they really want is they want it to feel like a centralized exchange. This is where all of DFI is headed. And the way you do that is you, you know, build really robust infrastructure under the hood that is like almost the same logic as, you know, Bybit or Binance having their own sort of custody system or bridging protocol for

a wrapped asset within the protocol. So anyway, there's probably a lot more discussion we had around that. Let's talk about the other side of this. And I think that's kind of the interesting challenge I see here, which is obviously a lot of people have. have Bitcoin, right? They've been holding Bitcoin for a long time and they're like, yield on Bitcoin sounds great, right? I won't yield on Bitcoin. Who doesn't want yield on Bitcoin, right? But then, you know, if you, I think one interesting sort of data point to see where we are with yield on Bitcoin is if you look at AVE, right, Avey has like $4 billion or something. Now, this is for like WBTC. I know there's like other BTC versions, right? But let's say,

if you just take WBTC the largest, like $4 billion, that's being deposited, earns basically 0%, right, deposit yield. So I think people deposit it because they want to borrow something else, but maybe they want to borrow stable coins to maybe buy more Bitcoin to take leverage or like, you know, do who knows what, right? So I think there's obviously demand for that side. But then if you look at, so there's the $4 billion that's being deposited, earning zero, borrowing Bitcoin and other is actually very cheap.

It's like half a percent annualized that you pay for it. And even at that low rate, only about 10% is being borrowed. So to me, it kind of illustrates, right, that it's actually still, even at this point, right, even with Lombard, even with like Babylon and some of these things happening, really hard to earn, you know, substantial like yield on Bitcoin. So where do you? And then that, of course, like so far, right, if people have stake Bitcoin, then, you know, where does the yield come from? I think it was mainly the Babylon AirDrop, right?

And then, of course, people, I'm sure, are expecting that, you know, there's going to be a lombard token. And if you hold LBTC, you're going to get some Lombard token, right? Of course, we don't know any details there. We don't know how much, you know, what kind of yield that converts to. but of course in both those cases it's kind of the it's a bootstrapping mechanism right it's basically say like hey

you're going to pay the token of this other protocol to get a lot of liquidity in and that can work well but then at some point right you need to have a sort of like real yield I think on the eigen layer we see this right now too where you know TBL is going down a little bit the yield that you earn from restaking EF is going down as well.

And sort of, you know, where's the real yield, right? So where do you think, what are the main sources of real yield for Bitcoin in the longer term? Okay. This is a great question. I want to get very often. And I'm going to try to tie it into a holistic answer that I think will tell a lot about how Lombard thinks about this, which is you would be correct that if you look at the Bitcoin ecosystem today, you don't see a lot of like real fundamental yield. But let's break that

down. Like, why is that? And part of the reason is it because people don't use Bitcoin as Bitcoin, like real Bitcoin within Defi right now. Or they, or they do only to a small extent. When I talked about like one of the things I'm most excited about is Bitcoin trading. It's because to me, trading or more fundamentally, a better way of putting it is like the creation of Bitcoin capital markets on chain is missing right now. And if we can create like really liquid Bitcoin markets to the point where people can hold like hold Bitcoin on chain, they can trade it. I mean, you could like literally directly on board to Bitcoin through ETH or Solana or some other chain and never have to touch Bitcoin main chain, but be holding a secure asset and using it as if it were underlying Bitcoin within all the best Defi protocols within on chain finance, then you would never actually need to go somewhere else, right? You never need to go back to Bitcoin Al-Wan.

you never need to go to centralized exchange. And so we're sort of in the midst of like bridging the gap, right? The problem, I think, is that everyone's trying to skip the development of a fundamental Bitcoin defy ecosystem directly to fundamental yield. Like, why is there good yields for ETH and stablecoins on chain? Well, because we built an entire defy ecosystem on top of that. People trade those assets. They pay with them.

They borrow against them. They lend them, right? Like lending demand, I think is a great source of a really healthy ecosystem. And so I think what we need to do is go back to the basics a little bit and like build real applications and businesses upon Bitcoin on chain that will then drive the fundamental yield that ultimately will lead this back. So the fact that we had Babylon is this massive catalyst for onboarding Bitcoin helped us speed things up, right?

It let us cut corners a little bit because there was this exogenous incentive that allowed people to get excited about using Bitcoin as collateral within Defi. but we haven't, I think we're still in the process of like developing really fundamental on-chain Bitcoin activity. But I, and I think it's coming, right? Like this is, this is why I say, you know, Lombard has been, you know, re-approaching the way that we think about onboarding Bitcoin into defy, not just as the form of a yield-bearing token, but in other forms too, to be able to service not only yield use cases, but utility. Because at the end of the day, like utility drives yield. If you create really liquid capital markets, you then open

the door for so many possibilities on top in a sense of like if I'm going to build a big doing business on chain it's kind of hard to do so because there's not great primitives of course other than Lombard but it's like it's it's kind of hard to build on on Bitcoin right now because there's not that much liquidity and and the ecosystem is still bootstrapping but if we you know if today we snapped our fingers and 10x liquidity on chain people would choose to build on chain defy or rather on chain bitcoin applications rather than going to build centralized exchanges and and like custodial Bitcoin applications. So I think this is kind of the missing piece is like, you know, yield is still in development. There are sources of yield, right? Like

staking yields for Bitcoin comes from a very similar mechanism to that of eigenlayer where third party chains or services are paying for validators to, you know, to sort of operate the network with Bitcoin at risk. If they fault, they get slashed. And in return, the chains are like paying for security to these users. This is where the fundamental yield for LBTC comes from. But I think there's so many other sources of yield that will develop in DFI over time. And maybe the one, you know, I said like, oh, Babel, you know, the introduction of an exogenous incentive helps us to kind of like speed things upper cut corners. I think the one other really big place that we're focused on to sort of help speed up adoption is the introduction of off-chain yield on chain. So there is plenty of

of Bitcoin yield, let me be clear. It just mostly exists off-chain, right? It's on centralized exchanges. It's on centralized lending platforms. Part of the reason Bitcoin Defi didn't pick up faster was because BlockFi and Celsius were like pretty damn good products. You know, you could lend your Bitcoin for a couple percent. I mean, it didn't turn out so well. But once those blew up and there was no other great place to earn yield on your Bitcoin, that's when DeFi finally found its product market fit. And so we are in the process, I think, of, of, um, sort of recreating that entire ecosystem that had really great product market fit off chain and bringing that on chain. So like, there's got to be some sort of tokenized lending product,

I think, out there. There has to be, you know, tokenizing the basis trade like what Athena did, but this time, you know, keeping your Bitcoin exposure. I think that's going to be a great product. I think there's so many different sources of like off-chain Bitcoin yield that people have been using, you know, have been, you know, all of the largest miners and institutions of it access to now is going to become widely accessible. So there is a lot to develop, I think, for the Bitcoin ecosystem. But we are on the right path. And I think like the real magic comes from this.

One of my hopes is that the outcome of creating liquid Bitcoin markets on chain is that you will see people build Bitcoin businesses that we never would have even been able to think about. Like the Bitcoin ecosystem has been void of innovation for years and years and years. I'm sure you feel this having worked with some of the coolest ecosystems in the space. It's like Bitcoin has always just felt kind of lame. and dead. But imagine if you built the right infrastructure to allow for some of the most principled builders in the space, the largest ecosystem there is in Bitcoiners, allowed them to start

innovating, like start trying to build the next cool primitive. So like one of my hopes, like I think we'll know Bitcoin, defy has been successful when like the next eigenlayer, the next Celestia or some other form of like, you know, really big defy innovation is built from Bitcoiners, not from users of another chain. We'll see how quickly that comes to fruition, but, you know. So I want to talk about staking as a form of Bitcoin, as a source of Bitcoin yield. So I see a big, big challenge with that proposition that I think we have seen play out on Ethereum with eigenlayer and restaking.

and it's basically the following, right? So if you're like, let's say, let's take Solana as an example. You know, Solana has a lot of inflation, right? It pays like lots and lots of money in Seoul to stakers. But, you know, where does that money go? Right. It goes to Solana holders. And Solana holders, you know, I'm a salonah holder.

You know, I'm staking Solana. I'm just accumulating more Solana. I'm like happy, right? Like maybe at some point I want to sell some salana, but it doesn't really matter to me. Right. Like, you know, did the salana come from the salana I originally bought or salana that I earned through staking, right? So it's, it's so from a protocol perspective, you know, it's for staking really or staking

yield really mainly ends up being a redistribution of like relative ownership from those who are not staking to those who are staking, right? So if I'm Salana, I'm like, yeah, that's fine, right? Like, okay, some people holding Solana, you know, be on an exchange or the trading or whatever, they don't stake. And then there's like some, some redistribution to those staking, you know, and then, you know, is now the staking yield 3% or 10%? It doesn't matter that much, right? Yeah. Now, of course, you have some debates. You know, we had recently in Solana, the same D proposed, a lot of debate about this, you know, opinions were kind of divergent, but in the end, I think it doesn't, you know, it doesn't make a huge amount of difference.

But that's very different with restaking, right? Because if restaking, I'm launching some protocol on eigenlayer, I have my native token of the protocol. I'm now paying that protocol token to the EF restakers. Yeah. And they just want higher, they want EF, right? They want more EF. They don't want, you know, 10 different protocol tokens.

So then either those people sell it or they use some sort of LRT and they sell it for EF. So now you basically have, well, if you're inflation, if you pay 1%, that's 1% sell pressure on your token. If you pay 5%, it's 5% share pressure on your token, right? So it starts being like much more of like a real direct cost. And I think we have seen the kind of consequence of that, which is, you know, you have all these ABSs on EigenLayer, and they basically all pay zero rewards right now. They sort of were like free writing on eigenlayer having the eigen incentives and basically funding is all. You know, those are kind of running out. But now, okay, these protocols still, you know, they're very hesitant, right, to pay anything.

I think that's, this is the same thing in Bitcoin, right? Because if you have now some other token and, you know, you're paying Bitcoin stakers, right, to secure your network, again, you're going to want to really minimize as much as you can, whatever you pay, because it's, it's just creating a cell pressure for your token. So, like, how do you see that and how, like, what is the path to, to actually get, you know, substantial staking yield for Bitcoin? Yeah, another really good question. So, you know, it's interesting hearing the discussion of like why it makes sense for native tokens to be used as state collateral, rather to be used as, yeah, as state collateral as opposed to some other asset. And I think what Eigen layer did was open up all of our minds to a world where economic

security can be provided by any asset, not just the native token. And I think when we really dive down to it, the more. we get to first principles, the more we realize that like native tokens of chains are used as collateral because like you said, there's like it's some mechanism to reduce cell pressure, it locks up tokens for a little while, it like feels kind of comfy and cozy. It basically is like I think that all of the logic of using native tokens as your staking token is actually something else. It's basically like we, like projects

think that they're, you know, they have no use, no real use case for their token. So you have to just use this. You have to use this token as like a staking token, right? Like, oh, you know, because what I think is like, it's interesting to hear your comments around cell pressure. But another way of thinking it is like, let's say your inflation is five or 10% to pay for

staking rewards. You're probably going to see a whole hell of a lot more sell pressure than if you're paying, one-tenth of that for your security budget. You know, Bitcoiners, you probably only have to pay them like half a percent or a percent APY to get a big amount of economic security in order to get the same amount of security for your native stakers. You're going to have to pay them a whole lot more, right? You're talking about Bitcoin, you know, asset that's like limited in volatility versus some brand new token that's out there that's probably, you know, going up and down quite significantly.

So I think that, you know, right now there's this, of course, there's, this narrative that to drive value to my token, I need to have it locked up to reduce cell pressure and I need to have this staking mechanism to get people to, like you said, to redistribute value to my long-term holders. But I think this is one of those things that over time is going to die. At the end of the day, it's like even paying inflationary staking rewards is like, you know, why are you doing that? I guess that is the question I think a lot of projects are asking themselves right now. Like, do I actually need to be paying for economic security? And I think a lot of the cases, it is yes, but it is a cost for the protocol. And so I should be treating it as such. So if

Bitcoiners are going to come in and give me economic security at one tenth of the cost, you would be stupid to not take that. Right. And what this means is then I have, you know, 90% of what was formerly my security budget to go do things to fundamentally grow the protocol, to onboard new users, to do other incentive programs. Because at the end of the day, it's like the value for the token is not derived by reducing cell pressure. It's derived. It's derived. by actually growing whatever sort of core use case you're trying to do. And so I think if there's any asset that sticks around long term as having a fundamental staking yield, it's going to be the lowest cost of capital asset, which happens to be Bitcoin.

Of course, a lot of this is theoretical and doesn't represent. I don't know if I totally agree with you here. Yeah. Because like if you, like let's say let's take the Solana example, right? Like is it really a cost, right? Because you just, you know, if you take like, let's say we take the analogy of like a company and the company, you know, just issues more shares to the shareholders. It's like kind of nothing really happened, right?

So I think where's the real cost come in? I think the real cost comes in in a few places. One is the amount that goes to validators, right? So the validator part is then basically the commission on the inflation, right? But let's say the inflation is 10% and the average commission is 5%. okay, now you have like maybe half a percent, right? And then I think the other part is maybe some people, now this again depends a lot on like the setup and where people are.

Some people have to pay taxes, right? So they have like they're receiving staking rewards. Now they've received like, you know, 8% on a year. They have to pay maybe 2% taxes. Well, that actually is a real cost, right? So they actually will kind of need to sell those 2% to cover the taxes, right? So and that and that should be like, you know, real cell pressure, right? But the rest is just sort of like, you know, you're changing a bit the, you know, the, you know, it doesn't like, I mean, it's an empirical question, I guess, to what extent, you know, to what extent inflation rate for proof of state networks is associated with cell pressure, right?

Like, yeah, I think we did like some analysis actually that around that for the SIMD proposal and we're like couldn't really find evidence for that. But, but like it's, it's, yeah, it's a good question, right? But then in the Bitcoin case, right, if you pay half a percent, that is sell pressure, right? So you have you have to kind of weigh these things. Now, which one is cheaper? I mean, might take a little bit on this at the moment, you know, the kind of debates around. Oh, should investors beat out to stake or like maybe we minimize staking yield and stuff? It seems to be a little bit, like let's say the investor staking bit is basically like Celestia has been debated a lot in this example.

And you know, have some opinions on that, right? Because basically if you are, if you say investors can stake and they're staking rewards of liquid, then of course they can sell them, right? So that may lead to real cell pressure, right? But then the flip side, of course, is that if you don't have that, then it's just all of the cell pressure happens when the unlock comes, right? So in a way, to me, it feels like if you say investors cannot stake, they don't receive staking rewards. You do not really ultimately reduce cell pressure.

You just defer cell pressure. Yeah, right? Exactly. And that feels like a little bit of a short-term gimmick, right, where you say like, hey, you want to basically inflate the FDB until the lockups come, right? So maybe for a year or so. But then you still have it. And then you have more of it because, of course, all the Celestia investors, for example,

you know, they could stake, maybe sell their staking rewards. Now they've already taken substantial amount of profits, right, have liquidated some of their positions. They're on lockcoms. They probably sell less, right? then they would otherwise. Yeah. I mean, I think, I think the answer that we're arriving to is probably somewhere in the middle. It's like staking has become this arbitrary mechanism to lock up tokens and create less cell pressure.

It's like, to me, it's just a very convoluted way to accomplish that goal, right? If that is the goal, then, you know, just produce a staking mechanism. I don't know, pay somebody a little bit of yield to stake their tokens or, do some deal with investors out on the side. To make this the core foundation of the protocol for, you know, or rather embed this in the core protocol, I think doesn't necessarily always make sense. And also, I mean, it's like, I kind of think it's interesting how you're framing this. It's like you're not actually paying staking rewards.

You're really just redistributing capital from some holders to others. So somebody's paying that tax. Let's put it that way, right? And I think, I mean, look, I used to work for a holder of a lot of major proof of stake tokens. And I can tell you that, you know, as much as it might seem like those tokens are just being redistributed. Yeah, I think deferred selling is probably a fair way of putting it rather than like no selling whatsoever. At the end of the day, like these big holders are, they're making money. They're treating that as yield.

They're calling income. So I don't think it's all like it just gets held. Well, I think if you have locked tokens and then you're in liquid rewards, for sure that's going to create real cell pressure. No, no question. Right, right. But I guess my point there is I don't think it's so much like it increases the overall cell pressure. It's just shifts it forward, right? And it just moves it out.

Now, you know, what's better here? It's a hard question, of course. It's a fair point for it. I actually have one more thought on Salonah, though, if you think of it this way. Like, if we broke out Salana's value right now, we would probably ascribe most of the value to, like, some sort of perceived economic monetary premium, right, I think. And then I would prescribe some smaller amount to, like, I don't know, like revenue generation or like current, current yield on that asset. And so if my goal is to, like, in the model where you are redistributing capital from people who aren't staking to those who are staking, What you're actually doing then, it feels like to me, is that you're taxing all of the people who are using their Solana within Defi. In the same way, we're talking about Bitcoin becoming this on-chain primitive.

I think a lot of people see value in having Seoul or ETH as these like monetary assets that are sitting in liquidity pools as like the unit of account within the ecosystem or people are using them to pay for stuff. So somebody's paying for that. And in this case, it's like if the goal was actually like, if, if most of the value is described from this monetary premium, I don't necessarily think it should be, obviously, because I'm arguing for Bitcoin becoming the core collateral. But perhaps users would gain more value long term from incentivizing those types of use cases with that money rather than paying it through a staking mechanism. I don't know.

We could go back and forth on these. I think that is a fair point. Yeah, yeah. No, you are taxing basically people who have the liquid assets. So, of course, to the extent that people use the liquid asset more in defy, they do get taxed there. So I think that that is absolutely correct. maybe you don't want that, right? I mean, that's, I think, where we have seen now some interesting innovations with

barra chain and initial, right, where they're basically using their inflation to both pay for, you know, the security and staking, but also for liquidity. And I do think that is something that makes a lot of sense to me. And I would expect, you know, it's still, I think TBD, if, you know, the particular implementation and approaches sort of work in the longer term, but at least as a general direction, I do think that is something that's going to, I would not be surprised

at all if that ends up becoming the norm. Yeah, totally. And then do you think, so in terms of the other Bitcoin yield sources, so you mentioned, for example, trading, so that you imagine just like having a lot of like on-chain trading between maybe Bitcoin

and other assets and then people earning like fees from Dexis, you know, for liquidity provisioning as a yield, do you think that's going to become a big yield source? A little bit, a little bit. I think it's actually like the second or third order effects of trading are what are going to drive yield within Defi.

So like trading itself to me is like the best representation of fundamental usage of Bitcoin within an ecosystem. Like if you trading is indicative of people like holding it in their wallets, doing stuff with it every day, borrowing it, lending it, using it as collateral and all these things. To me, that, like, trading volume or that trading number that I'm sort of like thinking about in my head is like a KPI is,

is like the ultimate yield source is probably still lending. And it's like farming perp funding rates and all of these traditional yield sources. It's, you know, selling, selling calls and stuff. But I think like you need trading activity on chain. You need speculative activity to sort of. like bulk up liquidity to the point where you can build all these use cases that we're describing. If you have really liquid on chain markets, then you can build all the cool use cases that give people to actually use their Bitcoin and earn yield on top of that. It's just a

primitive for building an ecosystem on top. So you guys are also launching or have launched Lombard chain. What's the vision for Lombard chain? So Lombard initially started off as sort of a permission to chain. We had, we built on raft consensus. There were only a few validators. In order to scale up the bridge and onboard new consortium members, like the ones I mentioned, we decided BFT consensus was the best way to do it. So we really built a, you know, sort of a consensus mechanism, built this custom as SDK chain specifically to operate the Bitcoin bridge. So we did that out of necessity. Now that we have this primitive, I think there's a lot of, a lot of potential

opportunity here. You know, the most obvious of one is Lombard mince all of these tokens on, on chains and in other, in other ecosystems, right? So like you deposit Bitcoin into Lombard, we mint a representation of that on ETH Mainnet. Lombard ledger itself could just become the tokenization layer for all of these assets. So our primitives, our yield vaults, and everything in between that then ultimately gets bridged to other ecosystems still, but sort of serves as a central hub and a central kind of like a neutral sediment layer effectively. So this is definitely something we've been considering. But, you know, I think we're, I think part of our strength as a team has been to break down,

you know, to break down things that we see in the market into fundamental problems that are pertinent enough to need to be solved. And so I think we're sort of keeping a cautious eye out about when it makes sense to really utilize the Lombard ledger to, you know, the best of its ability. Because the end of the day, I do see a lot of demand from users. Like, I don't know that sometimes I think people build like Bitcoin L2s and build like native ecosystems. And they're like trying to change user demand rather than just listening to the market. Like the market is telling them, I don't want to go, you know, connect some weird wallet and use your like, you know, funky new ecosystem that you've built on

Cosm wasam or something like that. When really, you know, the market is just asking for, for, you know, EVM use cases directly in, you know, next to AVE or something like that. So I think we're, I think we're keeping an open eye out. So, you know, Lombard Ledger doesn't do a lot today in the future, I think could become a tokenization layer. I think it could support some of the, you know, developer primitives that we're thinking about building to help, you know, app developers build Bitcoin use cases a little bit better. Right now we just have an SDK that sort of connects, allows apps to integrate, you know, Bitcoin deposits directly into their into their app. You know, all the abstraction is sort of happening under the hood for the Bitcoin

Bridge. My assumption is that more use cases will develop like that. And to the extent that we can build more functionality within the Lombard ledger to support the development of those, I think we will. If not, you know, it could just maintain as it is. When you look sort of to the next years, what are you most worried about? What do you see as the biggest challenges that need to be overcome?

That's a good question. I think maybe the biggest challenge is just continuing to shift Bitcoin culture. There has traditionally been a lot of aversion to, you know, putting your Bitcoin to work, like letting it leave, you know, letting it leave cold storage and start participating on-chain. And in particular, I think there's been a lot of a lot of disagreement around whether

expressive mechanisms are good or bad for Bitcoin. And I think to the extent we keep making progress with those conversations, you know, Bitcoin holders become more and more comfortable with on-chain finance and, you know, the movements for BitVM and OpCat gain a lot of steam, then I think this is smooth sailing and the thesis for Bitcoin liquidity on-chain is only going to grow. But there is a world I could see where, you know, the defenses for these or sort of we keep running into hiccups that just prolongs this battle quite significantly. In my view, you know, timing is kind of everything when it comes to when it comes to like having successful project. And, you know, we have, you know, things sped up exponentially with the introduction of Lombard of Babylon earlier last year.

but I think to keep up that momentum, we're going to need the Bitcoin ecosystem to continue to get around with this. So slowly but surely things are happening. So I don't think this is like a huge concern, but it's certainly something that's on my mind all the time. You know, am I, in the same way I'm sitting here at saying like, you know, we want to, you know,

we want to produce solutions to pertinent issues, like the most pressing issue that a user has. I think I'm always wondering like, how soon will Bitcoin holders come around to this, to some of this stuff? We're sort of addressing it in pocket. So it's like we started with the lowest risk, sorry, most risk-averse types of users who would be the early adopters. And as we expand up that stack larger and larger to the biggest institutions and some of the OG

miners in Wales, the speed at which I can onboard those people, I think is my only question, not whether we'll be able to on the board them. So there's a lot of Bitcoin L2's Bitcoin kind of side chains that have, you know, various degrees of, you know, trust assumptions where this increase of linkage is Bitcoin. But then, of course, there's also a lot of interest from chains like Solana, Ethereum, Sui to have Bitcoin on those chains and have Bitcoin ecosystems there. Do you have an opinion on that? Are you particularly bullish more on the L2s or sort of Bitcoin everywhere? Or like, where do you think this is going to play out? Yeah, I have a pretty strong opinion on this.

Most Bitcoin L2s do not enable anything net new fundamentally. They are a Bitcoin bridge plus an EVM palette. That is no better than a Bitcoin bridge like Lombard and the Ethereum ecosystem that has some of the best defy developers in the game. At the end of the day, users want to use the best applications. They want to use AVE and Drift and Hyperliquid. They don't want to use a fork of a fork of Ave on some second rate ecosystem. So I think that if I'm a Bitcoin L2, what I'm really doing right now is I'm soul searching.

I'm trying to find like what is the net new thing that I can bring to the Bitcoin ecosystem. And there are Bitcoin L2s, I think we're doing this. We're exploring trustless mechanisms that will allow them to onboard Bitcoin Capital that you probably couldn't onboard otherwise with like a trust minimized mechanism. So there is light at the end of the tunnel. But at the end of the day, it's like, and I obviously have thought about this a lot

because I used to invest in defy-products at Polychain. It's like there are only a couple ecosystems where we really see true defy innovation occurring. And it's like, you know, Heath, Maynett, Solana base. I think you see some really cool stuff happening in the movie ecosystems and some stuff popping up in Barretain and Mega-Eath and some of these new ecosystems.

But it's really hard to compete for app developers. And I think there has to be something net new. Otherwise, it's kind of dead on arrival. So Lombard has focused all of our effort on onboarding Bitcoin to the places where we think the utility will be most sticky. And that right now is in existing ecosystems, Ethan's Lana mainly. So that's kind of been the focus. What are the most important miles once that are coming up for you guys?

Yeah, I think significant milestones are, it's all in service of what we're sort of describing as the Lombard evolution. So more chains is sort of in line with the distribution of the homogenous product that we've shipped. And now everything is about breaking things apart. So over the course of the next couple months, we'll be introducing new Bitcoin primitives. We will be diversifying the security options for the underlying Bitcoin. we will be launching institutional products that I think will be quite big structured products with some big folks

including and some other Bitcoin yield primitives that'll be great. And yeah, the name of the game is on board as much liquidity as possible in whatever yield or utility use cases that people are thinking about. Lombard kind of continuing to be the home for Bitcoin finance and whatever way

it needs to look like. So we're going around and working with all the best app developers trying to create really Bitcoin native experiences that are going to stand the test of time, even when incentives, you know, and so long, long road to go, but we are fully focused.

We're not sort of getting distracted by new assets or new opportunities, fully focused on Bitcoin. And, yeah, we'll be here for years to come, trying to do the same thing. So again, hopefully Bitcoin community helps us out a little bit and helps us onboard Bitcoin sooner rather than later. But either way, we're going to make it happen.

Cool. Well, thanks so much for coming. on, Jacob. I really enjoyed it and excited to see how the Bitcoin defy ecosystem is going to play out and the role Lombard's going to play in this. Of course. Yeah, thanks a ton for having me. I've been a long time listener at the Epicenter podcast, including in the early days back in like, you know, 2018, 2019. So it's a real privilege to have come full circle. Yeah, absolutely. Thanks so much, Jacob.