Coinmanlabs Report:
Hello everyone, I am Paul from Coinmanlabs. Today, I want to talk to you about Lombard.
Solely a Store of Value
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’s ecosystem has been around for many years, its development has remained stagnant.
Bitcoin serves as a store of value primarily because of the following characteristics:
1. Scarcity: Bitcoin’s total supply is set at 21 million coins, which makes it scarce. Scarcity is an important feature of traditional value storage tools like gold, as it prevents the devaluation caused by excessive currency issuance.
2. Decentralization: Bitcoin is not controlled by any central authority, which means it is not influenced by government monetary policies and is not devalued due to economic crises in any country. This decentralized feature gives Bitcoin a certain level of value stability globally.
3. Security: Bitcoin uses advanced encryption technology to protect transactions and assets. The immutability and transparency of blockchain technology enable the Bitcoin network to resist fraud and double-spending issues.
4. Global Liquidity: Bitcoin can be quickly transferred globally, without being restricted by geographical and political boundaries. This high level of liquidity makes Bitcoin an effective tool for cross-border value transfer.
5. Resistance to Censorship: Bitcoin’s transaction records are on the blockchain, but user identities remain anonymous. This feature makes Bitcoin a tool to evade scrutiny in countries and regions with strict financial transaction regulations.
6. Long-term Appreciation Potential: Since its birth, the price of Bitcoin has experienced significant growth. Despite its volatility, Bitcoin’s value has shown an upward trend in the long run, attracting some investors to see it as a long-term investment and value storage tool.
Q: Can Bitcoin not fully unleash its potential?
As a decentralized digital currency, Bitcoin has gained recognition and usage worldwide since its inception in 2009. However, despite its many potential advantages such as decentralization, high security, and transparency, it still faces challenges and limitations in large-scale applications. Initially, Satoshi Nakamoto envisioned Bitcoin as a peer-to-peer electronic cash system, where decentralized digital currency could be used as a medium of exchange.
We all know that as a medium of exchange, currency plays a fundamental role in economic activities. The emergence of currency greatly simplifies the transaction process and improves economic efficiency. It is also time for Bitcoin to serve as a medium of exchange.
With the approval of Bitcoin ETFs, more traditional or technological companies are adopting Bitcoin as company assets or treasury assets.
According to statistics, over 1 trillion dollars worth of BTC is idle, and there are several reasons for this:
1. Lack of native yield: Unlike ETH with staking economics, BTC currently lacks low-risk sources of income (such as stable staking, LST, LRT, etc.).
2. Lack of cross-chain composability: Security is the top priority for any product or asset. Therefore, the current methods of using BTC in DeFi compromise security and decentralization.
3. Dispersed liquidity: Currently, BTC liquidity is dispersed, with various wrapped tokens being commonly seen, but they lack any usage scenarios.
4. Insufficient acceptance in DeFi: Currently, more DeFi projects prefer to accept ETH and USDC as their first choice.
Currently, in terms of market capitalization, liquidity, and institutional adoption, Bitcoin is the largest cryptocurrency to date, and the infrastructure for Bitcoin is also in place. Native DeFi will continue to exist (such as BRC-20, runes, ordinal words, inscriptions, OP_CAT, etc.), but the market needs new narratives, just like the DeFi of ETH in early 2020.
Lombard
Project website: https://www.lombard.finance/
Twitter: https://x.com/Lombard_Finance
Project Introduction: Lombard was established in April 2024 and is committed to unlocking the potential of Bitcoin as a dynamic financial tool by connecting it with DeFi. Lombard enables income-generating BTC to move across chains without dispersing liquidity, paving the way for the introduction of net new capital into DeFi. Its flagship product, LBTC, is a yield-generating cross-chain liquidity Bitcoin supported by BTC at a 1:1 ratio.
Project Analysis
Q: As a holder of Bitcoin, what is your biggest concern?
In the crypto world, there is a saying, “You want interest, but what others want is your principal.” Therefore, security is the most important aspect in the crypto world. People would rather not earn interest if it means ensuring their security, especially when it comes to Bitcoin.
System Architecture
The entire process can be divided into two categories:
Staking BTC on the Bitcoin blockchain
1. The staker requests a new or reused BTC address created by the Consortium for the selected blockchain and transfers BTC to that address.
2. The backend processes the transfer and, once confirmed, requests the Consortium for notarization.
3. The staker receives the notarized data (RLP-encoded data: uint256 chainId, address, uint64 amount, bytes32 txId, uint32 index, and signature: keccak256 hash value of data signed by the Consortium threshold key) and calls the mint transaction to obtain LBTC.
4. The Consortium selects a final provider to stake BTC, establishes an appropriate Babylon consumable staking transaction, and signs it using CubeSigner.
Unstaking LBTC (not supported currently)
1. The 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), then requests the Consortium for validation.
3. After validation, 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 the correct format transaction and signs it using CubeSigner.
4. CubeSigner checks the security policies and requests Consortium members for manual approval if the daily/weekly withdrawal limit has been reached or if the transaction appears suspicious.
There are two important roles here: Consortium and CubeSigner.
The Consortium is a decentralized state machine that allows ownership and asset management to be shared among its members. In a sense, the Consortium also has some resistance to censorship. It can manually confirm transactions, conduct threshold voting for signatures, select the most suitable service provider for staking to generate income, and more.
CubeSigner is a hardware-supported non-custodial key management solution that addresses the trade-off between security and availability of current keys.
Coinmanlabs Thinking
1. Currently, there are few narratives in the market. Even though Bitcoin’s ETFs have been approved, the market remains lukewarm. If the glory of DeFi can be reproduced on Bitcoin, LST is worth paying attention to.
2. Lombard has also attracted investments from large institutions and is worth early attention. Currently, it seems to be collaborating with Babylon to form LRT (as it appears now), but the specific DeFi aspects still need further observation.