Lombard (LBTC) <> Moonwell

Author: Maksym Repa (Head of DeFi at Lombard) // TG Contact: @Maksym00

Summary

This proposal recommends listing Lombard’s LBTC—a liquid-staked Bitcoin built on Babylon—as a supported asset on Moonwell. By adding LBTC as collateral, Moonwell will unlock the borrowing demand for cbBTC and provide a foundational source of yield for BTC lending within the Moonwell ecosystem. Additionally, listing LBTC as a borrowable asset would enable looping opportunities with PT assets from Pendle.

• Official Website: www.lombard.finance
• Documentation: docs.lombard.finance
• Github: github.com/lombard-finance
• X Profile: x.com/Lombard_Finance
• LBTC Dashboard: dune.com/lombard_protocol/lombard
• LBTC on Base: 0xecAc9C5F704e954931349Da37F60E39f515c11c1

LBTC’s Security

Lombard stands as the most secure Bitcoin Liquid Staking Token (LST) protocol, addressing both smart contract, 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 and Base. Lombard’s LBTC is exclusively backed by native BTC and has been fully redeemable since its launch - allowing for effective and quick arbitrage response to significant liquidity events. Additionally, Lombard is the first and only BTC LST to implement a proof-of-reserves oracle built in collaboration with Redstone. PoR oracle provides crucial transapancy and reassurance in solvency of Lombard’s BTC balances, consequently disincentivizing LBTC liquidations below redemption value and further strengthening the peg.

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.

Robust Oracles:

• Proof-of-Reserves Oracle by Redstone: Redstone monitors the Bitcoin addresses that belong to Lombard's consortium in real-time and derives a ratio between BTC controlled by Lombard and the total supply of LBTC tokens across all supported chains. There are also adjustments for total_unclaimed_lbtc (LBTC tokens that are not yet minted but already have correlated BTC tokens deposited to the Lombard protocol) and total_btc_unstakes_pending (BTC tokens in the 7-day withdrawal period). Read the documentation here and find the BaseScan link to the oracle here.

• Lombard’s Suggestion for Mixed Oracle Approach: Implement the Proof-of-Reserves Oracle by Redstone as a core price reference for LBTC in BTC denomination. In order to interpret the LBTC in USD terms, we suggest to multiply the Redstone’s PoR BTC/LBTC rate by Chainlink’s BTC/USD Price Feed available here.

Existing Gauntlet curated markets on Morpho:

• LBTC/cbBTC (Ethereum) - 94.5% LTV, $8.4m supplied
• LBTC/cbBTC (Base) - 94.5% LTV, $5.3m supplied
• LBTC/wBTC (Ethereum) - 94.5% LTV, $19m supplied
• PT-LBTC/LBTC (Ethereum) - 91.5% LTV, $5m supplied

Smart Contract Audits & Bug Bounties:

• The Halborn smart contract report is live on their website.
• The Veridise smart contract report can be found in the attached PDF.
• The Halborn consortium report is live on their website.
• The Immunefi Bug Bounty Program ($250k)

Other Smart Contract Details:

• Security Incidents: None
• LBTC transfers to date: 147k on Ethereum & 28k on Base
• Upgradability: Yes. 24-hour timelock is implemented.
• Token Pausability: Yes. An automated risk monitoring system can trigger a pause.
• Blacklist: No blacklist functionality for LBTC. However, the Security Consortium members all screen against TRM for sanctions and high-risk activities to reduce the risk of any illegal activity from Lombard depositors and LBTC owners.
• Privileged Roles:
  • Lombard Security Consortium: LBTC minting, and LBTC redemptions
  • Lombard Team: upgrading contracts (with 24hrs timelock), unpausing
  • Pauser multisig: pause LBTC contracts

LBTC’s Market Position

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.

• Public Beta Launch Date: August 21, 2024

• LBTC Market Cap: >$1 billion (circ. supply of 11.6k LBTC)

• Liquidity on Ethereum: ±$70m

  • WBTC/LBTC pool on Uniswap ($62m avg. monthly volume)
  • cbBTC/LBTC pool on Uniswap ($13m avg. monthly volume)
  • WBTC/LBTC stableswap pool on Curve ($13.5m avg. monthly volume)
  • eBTC/WBTC/LBTC stableswap pool on Curve ($1.2m avg. monthly volume)

• Liquidity on Base: ±$35m

  • cbBTC/LBTC pool on Aerodrome (no significant historical data on volumes)

• LBTC %TVL in DeFi: ±80%

  • $100m+ on DEXs
  • $50m+ on Lending markets
  • $170m+ on Pendle (in LBTC & eBTC)
  • $570m+ in Restaking

• Social Channel Metrics:

  • X: 38k followers (engagement MoM growth in Nov: 2x)
  • Discord: 21k members
  • [Telegram]: 1.6k members

• LBTC Distribution:

  • On Ethereum
  • On Base

LBTC’s 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 cbBTC: 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 Bitcoin lenders on Moonwell Protocol to unlock sustainable lending yields, addressing a gap in DeFi where BTC lending yields historically remain below 1% APY.

• LBTC x Pendle PT tokens: Lombard has a dominant market position on Pendle with $170m in liquidity in the form of LBTC. Leveraging PT tokens against LBTC and cbBTC offers a unique opportunity to capitalize on BTC's fixed yield.

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

Conclusion

This proposal outlines a strategic opportunity for Moonwell 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 fourth-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 cbBTC, and looping opportunities for fixed yield with Pendle’s PT tokens, providing a strong yield source for BTC and enhancing ecosystem liquidity. Moonwell users will gain access to incentives from Lombard’s ecosystem, creating a flywheel effect that drives adoption, liquidity, and rewards, supporting DeFi growth.