Summary
Chaos Labs recommends updated oracle configurations for LBTC on BNB Chain (not yet listed) and Ethereum. The change is due to Lombard’s activation of LBTC’s yield-bearing design on July 22, 2025. Staking rewards will be converted to LBTC and burned, causing the token’s fair value to rise above 1 BTC.
Similarly to LBTC, Chaos Labs recommends an updated configuration for eBTC to reflect the forthcoming changes.
Motivation
LBTC
Lombard has confirmed that all BTC deposited have been accruing Babylon staking rewards since April 6, 2025, and that on July 22, 2025, LBTC will become a yield-bearing token, passing those rewards into the asset’s exchange rate, unlike earlier distributions in which users claimed relevant reward tokens.
Lombard’s website states that in addition to the accumulated rewards since April 6, the unclaimed BABY airdrop balances will be swapped for LBTC, and the obtained tokens burned, effectively increasing its per-asset backing.
The initial yield distributions are expected to be weekly; however, Lombard intends to adopt a daily distribution in the future, which will prevent drastic exchange rate movement.
Additionally, the acquisition of LBTC assets to burn is expected to be performed through the BTC market to prevent liquidity issues.
It is important to update the asset’s oracle configuration to provide protections via the capped oracle. Additionally, to reflect that the asset will generate intrinsic yield and has not garnered borrow demand, we recommend reducing its borrow caps to 0.
eBTC
eBTC represents a restaked version of LBTC, and its backing is represented primarily by LBTC and, to a minor extent, by BTC wrappers to provide more responsive withdrawals. Its withdrawal process and internal accounting adopt a WBTC-anchored exchange rate; as such, any yield accrued to the underlying LBTC is expected to be properly represented in the eBTC’s internal exchange rate with respect to the underlying aggregate share of LBTC that collateralizes eBTC. As above, we recommend reducing the asset’s borrow cap.
Technical Analysis
LBTC
To determine the effective yield since the launch of the staking, we account for the combination of non-distributed airdrop and accumulated rewards as reported by the Lombard website as 59M BABY, which is currently valued at $3.1M.
Given current LBTC market cap of $1.73B, if no additional tokens were to be claimed, we estimate the accrued yield of LBTC to represent an increase in LBTC price of 0.18%, representing an annualized yield of 0.93% if started on April 6.
In order to ensure a sufficient margin of error given by changes in BABY’s price and LBTC market cap prior to launch, we recommend adopting an initial Annual Growth Rate of 2%. The snapshot gap should be set equivalent to one month of the AGR, or 0.17%.
These parameters can be adjusted following the launch of the asset and after observation of the effective yield accrued.
eBTC
As eBTC’s backing has historically ranged between 90% and 99% LBTC, we recommend adopting an AGR ****of 95% of the one recommended for LBTC, thus 1.9% is recommended to represent the expected rate of accrual of the asset. The Snapshot Gap is set according to the methodology above.
Specifications
LBTC
Oracle Configuration
| Annual Growth Rate | Snapshot Interval | Snapshot Gap |
|---|---|---|
| 2% | 30d | 0.17% |
Borrow Caps
| Market | Current | Recommended |
|---|---|---|
| Ethereum | 45 | 0 |
| BNB Core (not live) | 2 | 0 |
eBTC
Oracle Configuration
| Annual Growth Rate | Snapshot Interval | Snapshot Gap |
|---|---|---|
| 1.9% | 30d | 0.16% |
Borrow Cap
| Market | Current | Recommended |
|---|---|---|
| Ethereum | 12.6 | 0 |
Disclaimer
Chaos Labs has not been compensated by any third party for publishing this recommendation.
Copyright
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