Proposal: List Lombard’s LBTC on Venus Core Pool (BSC)

Proposals
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Summary

This proposal recommends listing Lombard’s LBTC—a liquid-staked Bitcoin built on Babylon—as a supported asset on Venus Core Market for BSC. By adding LBTC, Venus will unlock the borrowing demand for pegged BTC assets such as BTCB to provide a foundational source of yield for BTC lending within the Venus ecosystem while fostering greater liquidity and user engagement.

Background

Lombard’s mission is to expand Bitcoin’s role in decentralized finance (DeFi), turning it from a passive asset into a productive financial tool. Our core product, LBTC, is a secure, liquid-staked Bitcoin token that enables users to earn yield by securing PoS networks via Babylon, while preserving the original value of their BTC. As a 1:1 BTC-backed, yield-bearing token, LBTC facilitates cross-chain movement without fragmenting liquidity, aligning Bitcoin seamlessly with DeFi use cases.

Our team includes seasoned DeFi experts from Polychain, Babylon, Argent, Coinbase, and Maple, each with deep experience in scaling DeFi ventures. Lombard is incubated by Polychain Capital, which led a $16 million seed round in July 2024 with investments from Babylon, dao5, Franklin Templeton, Foresight Ventures, Mirana Ventures, Mantle EcoFund, Nomad Capital, OKX Ventures, and Robot Ventures. In October 2024, Binance Labs further strengthened Lombard’s backing by joining this extensive list of strategic partners.

Lombard’s Security

Lombard stands as the most secure Bitcoin Liquid Staking Token (LST) protocol, addressing both custody and depeg risks.

BTC Security: Lombard employs a trust-minimized, decentralized security model for BTC. Using a validator network (“Lombard Consortium”), validators notarize deposits to allow minting/burning of LBTC. Key management and a robust set of policies (off-chain smart contracts) that cryptographically restrict the actions the Lombard Consortium can take, preventing malicious actions or actions not intended by the Lombard Protocol. Multi-factor approvals and a withdrawal delay are required as an extra precaution.

Depeg Protection: LBTC is the most liquid Bitcoin LST on the market, supported by $100 million in DEX liquidity on Ethereum, Base and BSC. With plans to expand across chains, we intend to scale in a very comparable fashion, which means that Lombard’s DEX will keep expanding exponentially. Lombard’s LBTC is exclusively backed by native BTC, is fully redeemable since launch. Additionally, Lombard was the first to introduce a proof-of-reserves oracle built in collaboration with Redstone.

Note: Historically, no meaningful price deviations ever occurred to the market price of LBTC paired against BTC-pegged assets such as WBTC and cbBTC.

Proactive Monitoring: Lombard have implemented multiple layers of active monitoring for LBTC contracts and relevant contracts across all supported blockchains. We utilize multiple RPCs and the Hexagate platform to detect malicious activities, with automated pausing capabilities and incident response via PagerDuty. Additionally, we monitor heavy DeFi allocations involving LBTC to screen for third-party market risks continuously.

Smart Contract Audits & Bug Bounties:

LBTC: The Market Leader

Beyond its security-first design, LBTC has emerged as the leading market player in Bitcoin staking, representing over 40% of the Bitcoin LST market share and serving as the largest staker on Babylon. Additionally, LBTC ranks as the fourth-largest overall BTC derivative, trailing only WBTC, BTCB and cbBTC.

LBTC Value Proposition

Yield-Bearing Collateral: LBTC provides an underlying yield from staking BTC within Babylon, making it a yield-bearing asset. Bitcoin LSTs are positioned to follow the success of yield-bearing ETH LSTs by offering BTC holders an effective way to maximize capital efficiency.

Ideal Collateral for Underutilized BTCB: Demand for leveraged LBTC exposure is consistently high across lending markets, where utilization rates for LBTC borrowing frequently reach maximum capacity. This presents a unique opportunity for BTCB lenders on Venus Protocol to unlock sustainable lending yields, addressing a gap in DeFi where BTC lending yields historically remain below 0.15% APY.

Incentives: Listing LBTC on Venus opens the door for users to tap into a range of incentives from leading BTCfi protocols, including Lombard and Babylon. LBTC deployed on Venus earns Babylon Points and benefits from Lombard’s Lux program, providing a 3x Lux boost for LBTC collateral on Venus.

Lombard Ecosystem Flywheel: Integrating LBTC within Venus feeds into a powerful “flywheel” effect within the Lombard ecosystem, enhancing its value proposition across DeFi. In just two months since launch, Lombard has demonstrated strong network effects, establishing exclusive partnerships that benefit every protocol utilizing LBTC. Examples include LBTC’s role as the exclusive collateral for ether.fi’s LRT eBTC and the Lombard DeFi Vault, built in partnership with Veda and uniquely incentivized by Corn. These strategic integrations create additional opportunities for protocols integrating LBTC to access net new liquidity and unique incentives.

Conclusion

This proposal outlines a strategic opportunity for Venus Protocol to tap into a rapidly growing BTCfi ecosystem, onboarding the leading asset within the category - LBTC. With over 40% market share in Bitcoin LSTs and ranking as the third-largest BTC derivative, LBTC combines secure, yield-bearing capabilities and robust liquidity.

Adding LBTC will tap into high borrowing demand for BTC-pegged assets like BTCB, providing a strong yield source for BTC lending and enhancing ecosystem liquidity. Venus users will gain access to incentives from Lombard’s ecosystem, creating a flywheel effect that drives adoption, liquidity, and rewards, supporting DeFi growth.

4 Likes
2

I’m very favorable to add lbtc in BNB Core Pool

1 Like
3

I find this proposal interesting since there is a significant increase in demand for BTC LST tokens, and having this take place on the BNB Chain network is fantastic. You can count on my vote.

4

Absolutely agree! We need to list more BTCFi tokens into Venus’ core pool at BNB Chain. LBTC is a good choice because Venus has listed solvBTC on core pool(BNB Chain).

5

A great innovation I must confess

6

go ahead! It’s a good idea to list LBTC on VENUS core pool(BNB Chain)

7

Overview

Chaos Labs supports listing LBTC on Venus BNB Chain Core pool. Below we provide our analysis and recommendations.

Technical Overview

LBTC is a liquid staking token offered by Lombard, representing BTC staked with Babylon. It generates yield from Babylon’s native staking rewards and Lombard Lux, the protocol’s reward system for early adopters.

Depositing and Staking

When depositing on Lombard, users send BTC to a unique SegWit address. Lombard generates a distinct SegWit Bitcoin deposit address for each user, utilizing CubeSigner—a tool that securely stores all keys in dedicated hardware and enables the creation of custom policies around keys usage. Lombard uses it to enforces strict access controls, allowing transactions exclusively with Babylon and requiring multi-party approval (MPA).

Lombard’s architecture centers around the Security Consortium, a distributed network of nodes, each managed by a different organization. When a user deposits BTC, every consortium member independently verifies the transaction on the Bitcoin network.

Once validated, the consortium collectively signs a notarized proof. The user then submits this signed proof to the LBTC smart contract, triggering the minting of an equivalent amount of LBTC.

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Source: Lombard Documentation

Simultaneously, the notarized proof triggers the staking of the deposited BTC with Babylon. A special transaction is created detailing the BTC amount, the Babylon Staking Contract address, and a timelock that defines the duration of the BTC stake on Babylon and selects finality providers, which are equivalent to validators of PoS networks. The consortium then signs this transaction, and the BTC is deposited into Babylon. For BTC deposits, Babylon uses Bitcoin’s native scripting capabilities to create time-locked UTXO contracts. Once the transaction is received in the contract, the user’s deposited stake will be allocated in the form of voting power to the corresponding finality provider. Additionally validators receive a 3–5% commission from staking rewards.

The Security Consortium also transfers an Extractable One-Time Signature (EOTS) to the finality provider, which serves as proof of ownership of the deposited BTC. When the finality provider participates in finality votes on a PoS network, they use the EOTS for the signatures, demonstrating control over the staked BTC delegated to them by Lombard, without having access to the actual private keys.

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Source: Babylon Documentation

Slashing

If a finality provider violates consensus rules, such as double-signing, the EOTS cryptographic mechanism exposes the private key of the contract where the provider’s delegated BTC is locked. This enables anyone on the network to use the key to initiate a slashing transaction on the Bitcoin blockchain. The slashed funds are then transferred to a designated address by the Babylon protocol. While slashing is currently inactive—pending activation during Phase 2—it is expected to follow the ongoing deposit event. No specific public release date for Phase 2 is available.

Importantly, slashing risk for LBTC is significantly mitigated by the following factors:

  • For a safety violation to happen in the Babylon protocol, over 1/3rd of the total stake would have to sign two blocks at the same height, hence being considered malicious. Only then a slashing transaction can be initiated.
  • Validators cannot be slashed for being offline or inactive, unlike Ethereum. Slashing only applies if a validator actively votes on a duplicated block, meaning Lombard’s staked BTC faces minimal risk of being slashed under normal conditions.
  • The slashing_rate specified in the latest version of the Babylon parameters on GitHub starts at 10% and can be adjusted through network consensus. Additionally, the slashing mechanism may be set up to lock a portion of the stake into a timelock rather than burning it entirely, further reducing the impact of slashing events.

These structural design choices collectively make the likelihood of slashing for LBTC low.

Unstaking and Withdrawals

A user on Lombard initiates the unstaking process by burning LBTC tokens, triggering a request to the Security Consortium to unstake the corresponding BTC from Babylon. After the 7-day withdrawal period set by the Babylon protocol, and a fixed 0.0001 LBTC Network Security Fee is applied, a bridge contract on Ethereum facilitates the BTC withdrawal using another mechanism called the Bascule Drawbridge. The Bascule Drawbridge verifies the request by checking its internal depositHistory mapping for a corresponding deposit record, ensuring the withdrawal matches a previously validated deposit.

BNB Chain

We have previously recommended listing LBTC on Ethereum. LBTC on BNB Chain is a native bridge, and its smart contracts are owned by the Lombard Protocol. LBTC can be minted directly to BNB Chain from a native BTC deposit, as well as redeemed. Additionally, the protocol has a Private Market Maker that holds $2.3M BTCB. As described in the documentation, this is intended to serve as a convenient onboarding function for retail users and is not intended to facilitate arbitrage.

Market Cap and Liquidity on BNB Chain

Ethereum holds the vast majority of LBTC supply, at over 16K. Currently, its supply on BNB Chain stands at 113.

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Relative to its somewhat limited supply, its DEX liquidity is strong, though largely concentrated in a PancakeSwap pool paired with BTCB.

There are currently 23 BTCB paired with 30 LBTC in this pool. Its on-chain liquidity has been somewhat stable and has largely fluctuated as a result of swap activity within this pool.

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Volatility

LBTC’s peg stability relative to WBTC on Ethereum has been very strong since November, reaching a low of just 0.999 WBTC in November.

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On BNB Chain, its peg relative to BTCB has been decreasing, though it was recently brought closer to peg following a large swap.

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Collateral Factor

Following the above analysis, we note that LBTC’s on-chain supply on BNB Chain is somewhat limited. However, given its strong demonstrated peg stability on other chains, we recommend setting its CF to 70%. This parameter can be increased following observations of user behavior and increases in on-chain liquidity.

Interest Rate Curve

We recommend aligning the asset’s IR curve with BTCB’s in the core pool, however with its Kink set lower at 45% given the asset’s novelty and lower liquidity relative to other listed BTC derivatives.

Supply and Borrow Caps

Normally, our methodology involves setting the supply cap at 2x the liquidity available beneath the LB price impact. However, given the concentrated liquidity, we recommend setting the supply cap slightly lower than the available exit liquidity, at 20 LBTC. We recommend setting the borrow cap to 2 LBTC given limited historical borrowing demand for BTC-linked assets.

Oracle Configuration/Pricing

An LBTC/USD market oracle is currently available on Chainlink on Ethereum, though not on BNB Chain. Additionally, the Redstone LBTC/BTC fundamental oracle is unreliable, as it currently shows a value of 1.005 before the asset has begun accruing yield and is likely relying upon a calculation between total supply and reserves, which presents problems during large mints and redemptions.

Given that slashing is not currently implemented, we recommend adopting a BTC/USD oracle feed. When available, the protocol should switch to an LBTC/USD market oracle to reprice collateral.

Specification

Asset LBTC
Chain BNB Chain
Pool Core
Collateral Factor 70%
Liquidation Incentive 10%
Supply Cap 20
Borrow Cap 2
Kink 45%
Base 0.0
Multiplier 0.09
Jump Multiplier 2.0
Reserve Factor 20%

Disclaimer

Chaos Labs has not been compensated by any third party for publishing this recommendation.

Copyright

Copyright and related rights waived via CC0