Lombard: Unlocking Bitcoin DeFi Through Liquid, Yield-Bearing LBTC - Jacob Phillips. Ep. 603

Transcript

Bitcoin never got anywhere close to like fruition or critical mass I think at that point. Um, and you never really saw any of the big DeFi 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 would probably always be a little bit of a secondass asset. But, uh, fast forward, you know, 3 4 years later, you had Bitcoin culture shifting towards accepting expressivity. you had uh 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 um ecosystem and you saw the implementation of early DeFi native mechanisms directly on Bitcoin L1 um inscriptions being the big one that sort of created the first

little casino like frenzy um uh upon Bitcoin which got people excited about like envisioning what what else could be built upon Bitcoin. This was the first time people were like, "Oh, shoot. Maybe we can maybe this DeFi 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 Epson, 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 uh one of the you know best projects in

the Bitcoin DeFi area. Uh they have a liquid staking asset LBTC that has gotten a lot of traction. So really excited today to speak with Jacob about Lombard and about Bitcoin DeFi and his journey more generally. So thanks so much for coming on, Jacob. Yeah, definitely. Thanks for uh thanks for having me. Yeah. So, just before we start with Jacob, we want to share a few words from our sponsors this week. If you're looking to stake your crypto with confidence, look no further than Chorus 1. More than 150,000 delegators, including institutions like BitGo, Panta Capital, and Ledger, trust Chorus 1 with their assets. They support over 50 blockchains and are leaders in

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looking for an L1 to launch your project, Nosis Chain offers the same development environment as Ethereum with lower transaction fees. It's supported by over 200,000 validators, making Nosis chain a reliable and credibly neutral foundation for your applications. Nosis DAO drives Nosis governance where every voice matters. Join the Nosis community in the Nosis DAO forum today. Deploy on the EVM compatible Nosis chain or secure the network with just one GNO and affordable hardware. Start your decentralization journey today at nosis.io. IO. Great. So, thanks so much for coming on, Jacob. Uh, so I'm curious

sort of let's start at the beginning. I think you started in traditional finance and then uh sort of transitioned into crypto. Like how how did you end up working in crypto? Yeah, some something like that. I think I interned traditional finance. Maybe that was the closest I uh ever got. But uh but yeah, I mean the way I 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 into politics and like write policy. Um 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 an econ degree decided got really into the stock market. Decided I was going to become like a go work at a hedge fund or become an investor um at some point like an equity researcher. And um 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 on my hands and started just serendipitously sort of researching uh 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 uh so I just sort of started exploring this. I was reading about all these like, you know, 25 year olds building um really cool companies and then selling them for hundreds of millions of dollars and doing really cool things and 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. I the only way I knew how to like get into tech was to go do 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, um, like I said, doesn't have a great technology scene, but they were trying to make a a move into, um, into crypto, um, as was everybody at that time. Well, blockchain, I guess. Uh, and they, um, there was like a publicly funded, uh, 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 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 uh well in 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 go

into traditional finance and you know, work for someone's boss's boss's boss's boss or something like that. You know, maybe I'd be an intern still at this point. uh 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 uh 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 uh to PolyChain um after graduation, which was really cool. So, that was like a year of grinding, just basically spending full-time uh researching crypto just with the goal of trying to get somebody to hire me to research crypto professionally. Um and then, yeah, ended up at Polychain, DeFi summer kicked off.

I, you know, sort of had a little bit of an edge because I'd been researching DeFi, as much if not more than anybody else, um, you know, in the in the investment scene. So, that sort of became a little bit of my niche. Um, ended up leaving Polychain after, um, just about three years to join a DeFi studio that ended up building a purpose protocol. Uh, and then ultimately ended up, uh, starting Lumbard. So, that's kind of the story. So, Polychain of course is pretty much one of the most legendary uh crypto investment firms. What were the main main things you learned from there that sort of shaped your thinking? Oh, that's a good question. Um, I learned a lot from Polychain. One was that I wasn't

quite as smart as I thought I was uh 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 Polychain, 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 privilege priv a privileged look at like you know how people are viewed, you kind of get to see people at a 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 you're able to develop much more um much more specific um I guess trends of like what those look like. So I think that definitely changed my thinking. Um Polychain had um a lot of characters on the investment team. Uh 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 focus more on dealm. So, I think I I I learned a lot from a lot of different folks there. And um overall, I mean, I think, you know, investing and building are two very very different crafts that have different motivations and different aims. And um I think um in my transition to being a

builder, I take away a lot of the the lessons from like what worked or didn't worked in the investment landscape and are sort of applying those practically. in in some ways, you know, because I started out as an investor working at um you know, like you said, like one of one of the best in the space, but with a very um 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,000x or something like that. So, really shooting for like the home run of home runs, I think um can it it both is uh beneficial into thinking about like uh you know, where the space is headed.

Polychain's kind of internal motto was see the future first. So, I think that certainly trained my mindset of like uh 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, it's, you know, 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. Um, I wrote a lot of I, you know, I wrote research both internally and externally at 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 airdrop 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 like the way that the space operates uh as a builder is much different or or rather like the things that matter to to projects and builders are not always the same things that matter to the VCs. So I think I've I've changed my mind on a lot of things that I had once learned at at Polychin that I think I've uh 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 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 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, uh, 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. Um, 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 um that that is usually indicative of a of a top tier um founding team. If

not, it usually means that these people are, you know, uh, I don't know, capturing a short-term opportunity or maybe not the best suited. And I think um maybe the maybe the other most significant telling sign. So it's like coherent vision plus like rockstar team it's basically like if you look at these folks and um you know you kind of look at not maybe not even just the founders right the founders are usually quite strong um otherwise you know they wouldn't be able to go out and and raise money or have conversations with the biggest funds in the space. But I think what's even more interesting is like what is their first second third fourth hire look like? Uh the best teams come to us with a pitch deck. 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 um that was always really important and honestly how would you judge how would you judge whether the 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 Poly Chain, but I definitely have learned it now being on the builder side, which is um 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 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 um or not? And I think most of the time even in even among the investments that I did at Polychain uh most of the time the answer was there was no clear edge. It was just a group of smart people. Um uh but you know the eventually they falter or they they run

into some situation where somebody else steps in with a little bit of a of a better background. So um 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. Um 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 at poly chain and then you had to unlearn again building Lombar. What were those things? I think the biggest thing was that um when when you are an investor every you're always thinking about optimality.

What is the perfect way to do something? When you are a builder, you like your entire life is operating uh with within chaos. And so like I talked about the airdrop mechanisms and like optimal token distribution. I wrote I wrote and thought a lot about this and in retrospect it was like simplicity like for builders simplicity is key not 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 try to make things a little bit too theoretical and complex on the on the um on the investment side and this is you know

this is another thing of like look in invest ers of course love to do victory laps after things um 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 stage 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 Polychain did the best on when I was there, uh, most of those I would describe as like uh, 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 that's kind of the name of

the game. All of 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 that big of um, that big of an outcome. So um and yeah I mean on the on the builder side I think everything is about like do making practical solutions. Had I gone out and tried to build some of those like airdrop and token distribution mechanisms that I prescribed for builders back in the day. Um and actually like I I told I told um 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 on 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, um, 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, uh, the the 8020 rule of like getting mo, you know, most of the way there without wasting a ton of time is is like the um is the name of the game. And the other maybe the last thing real quick is like there were so many so many problems I was thinking about that just aren't that big of problems, right? It's like uh like oh what is the optimal token use case? And it's like I don't know just get something 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, right, you're obviously focused on the Bitcoin space. What why did you decide to work on Bitcoin? So I had been very deep into DeFi since DeFi summer, right? This was kind of the first place that I found my edge at least as a as a researcher. I had invested in a protocol called Badger Dow back in the day. Um when I was at Polychain that was, you know, sort of one of the early attempts to um onboard Bitcoin into existing um DeFi ecosystems. Uh in the midst of that

investment, we had done a full deep dive on everything that existed. Um, and you know, Badger was probably the best at that time. I got excited about Bitcoin. Um, because it felt like the timing was finally right. So, um, you know, with the concurrent it sort of like all the stars were aligning. Back in DeFi summer 2020, you know, some people got excited about WBTC, there was Badger Dow, there was like a brief little phase on Roottock, I think, that got people excited, but Bitcoin never got anywhere close to like fruition or critical mass, I think, at that point. Um, and you never really saw any of the big DeFi 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 secondass asset. But, uh, fast

forward, you know, 3, four years later, you had, um, you had, uh, Bitcoin culture shifting towards accepting expressivity. you had uh 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 um ecosystem and you saw the implementation of early DeFi native mechanisms directly on Bitcoin L1 um inscriptions being the big one that sort of created the first little casino like frenzy um uh upon Bitcoin which got people excited about like envisioning what what else could be built upon Bitcoin. This was the first time people were like, "Oh, shoot. Maybe we can maybe this DeFi 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 Polychain was a seed round investor in um in ien layer and then led the Babylon series A when they were going from uh timestamping into a staking protocol. um and just sort of ended up being the the perfect opportunity to take up a big a big stake in that ecosystem recognizing that the exogenous catalyst of Babylon and Bitcoin staking was going to be the core force for distributing Bitcoin throughout DeFi. So, uh Bitcoin staking I think is a super powerful primitive um and onboarding mechanism. I didn't necessarily wake up every morning thinking that like hey you know Bitcoin staking is gonna um be 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 in DeFi. And sure enough that kind of happened right like you saw Pendle and Morpho and Gearbox and A and Ether like the largest uh DeFi protocols in all of the game totally rearchitecting their go to markets to focus on um 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, um, all of this was was sort of the the um the impetus for getting us excited about about doing this. And, um, like I said, I mean, when it goes back to Edge, the timing was

just right. We were, um, hitting the market in stride at at the right time. LBTC launched as this like killer product yield bearing Bitcoin um that created the catalyst for people to care about Bitcoin and DeFi um 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. I layer and um the sort of uh proliferation of uh LSTs and LRTs throughout DeFi sort of foreshadowed what would happen in the Bitcoin space. So, um, yeah, I think all of that led to us getting excited about the opportunity.

So, you said Bitcoin staking, you know, you saw as as kind of like a core thing uh 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. Well, we know why it hasn't come on chain relative to other assets, right? Like if you look at ETH versus Bitcoin in in ETH DeFi, it's like ETH is um more trustless. It is uh 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 threshold, right? Similarly, you know, we've always known that there's been a fundamental thesis for yield bearing tokens within DeFi. I mean there's like uh the classic there's the post from Dan Elliser 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 IEN layer points that then did you see every DeFi protocol in the game be like okay I'm going to stop building on ETH and I'm going to prioritize um uh ST and LRTs because these are actually the growth mechanisms for uh for my DeFi protocol.

So, um, 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 onchain 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 um you'll see really exciting things happen. And that's really what's played out, right? Like Lombard went zero to a billion in um in like just uh just over 3 months. We're the fastest yield bearing token to do this ever. for fast and Athena, fast and etheri, fast and liido. Um and um and you saw, you know, big DeFi protocols get excited about Bitcoin. Bitcoin became cool in DeFi for maybe the first time ever, which is kind of funny to say. And um now everybody's excited

about Bitcoin DeFi. So like even in the aftermath of what was um an incentive driven frenzy for um an explosion of Bitcoin defy in existing ecosystems, you still will see like the the ripple effects of this over the course of the next two years is that this exponentially sped up the adoption of um of BTC onchain. Um 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 Avalon?

Great great question. So here here's what I'd say is like fundamentally Lombard is a Bitcoin bridge. We have like uh our our flagship product is LBTC this liquid staking token. Um, this is now uh two 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 DeFi 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 um sort of non-custodially integrated directly on Bitcoin L1. Um and then a liquid representation of this is is minted. So

Babylon was sort of the key to this. You know, you saw the proliferation of SDH. Um if people could stake their Bitcoin, of course, this would be um 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. Um Babylon sort of um came up with this fancy mechanism. So the the way it works is it relies on some a little bit of fancy cryptography which basically allows so um you you have a um there's sort of time locks in in Bitcoin are are pretty standard. And what Babylon basically realized was you could combine some fancy cryptography in the

form of a um a one-time extractable signature and a um basically like a a payoff function that makes it such that users can take this the onetime 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 um two block updates at the same height um uh in in um classical terms known as equivocation or double signing. Then through the cryptography uh the private

key is then revealed and um a user is able to um 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. Um but the the magic here was creating that slashing mechanism directly within bitcoin script. So, um, this was sort of, uh, I guess DeFi magic on chain, maybe the, um, one of the only, uh, sort of expressive protocols that you could build directly from Bitcoin script without without additional upgrades.

And, um, I think this got everyone excited. I mean, I I um have said this before. I think it's probably true, which is um 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. Um so I think it it 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 per protocols on Bitcoin and, you know, do all this uh, you know, stack a ton of protocols together, do a lot of like composable DeFi when really people just wanted to do something very, very simple. They wanted to take like a

cryptonative risk that they're very comfortable with that's like pretty low risk, um, and earn a little bit of yield on it. So, um, what an onboarding mechanism it's been. Every Bitcoin holder in the world, I think, is like exploring this to some degree. So, um, yeah, it's been, um, it's been fun to work with the with 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. Um, they, uh, had like a billion dollars staked in a single transaction, which is pretty crazy. So, you have the, you mechanism, right, where like the Bitcoin gets sort of locked up. You have this key pair, right? It can then be used for uh basically for signing things on other

chains, right? So you can then basically say, okay, now it's being used to to secure other types of services. And then Lombard Bitcoin basically means now um it's kind of the custody goes to the Lombard protocol and you guys issue LBTC. Exactly. Which Yeah. Yeah. and and maybe I 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 uh was sort of two 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 as liquid staking or Bitcoin bridge, you need to create some you basically need to like let some party on top of Bitcoin script uh certify the expressivity. So in this case, it's like you can think of Lombard, we we built this Lombard Consortium, which is uh you know a group of the largest institutions in the space, you know, um OKX, Wintermute, uh DCG, um uh Galaxy, uh Chorus One, right? like um 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 their 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 this new protocol. Right. And then on top of that there is a liquidity primitive. We we we minted um LBTC uh liquid uh representation of staked 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 um relying on one tightly integrated um custody solution uh and one liquidity primitive that was distributed throughout ETH um ecosystem minted on base on Vera Chain on all these other places. Um, but when we when we think about this, it was like the

system itself was built to be homogeneous, to be a really great product out the gate, but nothing about the system necessitates um, uh, that it be homogeneous. So, what we're really doing right now is actually breaking this out. You know, Lombard's goal from the beginning has been to make Bitcoin a productive asset within onchain ecosystems. uh 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 if we start with the supply side like one of the big things we've learned is that um there are two I guess there's like really strong demand for two different types of um of security solutions. One is a fully decentralized protocol that

has permissionless minting for um for retail minting and burning and bridging um that anybody in the world can use that protocols can integrate that chains can build upon. Um this is like kind of the core Lombard protocol today. So uh that that version of the protocol will become fully decentralized. Um 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 the most what they view as the most secure um uh 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 a a Bitcoin staked ETF or something like that or on boarding um you know, governments to uh you know, onchain finance. The only way we're going to be able to do that is if we work with qualified custodians. So there'll sort of be like a dual custody approach among uh w with with sort of a shared security uh 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 reststed or 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 uh those still aggregate into LBTC or those will be a different thing. So so the they um the liquidity primitives will ultimately be separated into multiple different primitives. So, LBTC will still be the the core kind of risk minimized staking primitive, but then I think there is demand for uh just a Bitcoin rapper that can be permissionlessly minted and um uh used within qualified custodians. Um 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 way the simplest way to break it down is like LBTC is the perfect collateral um for Bitcoin onchain. So like the largest onchain options options um trade ever was collateralized in LBTC. um using a yield bearing bitcoin um to trade per is genius because it's just I mean yield bearing tokens are more capital efficient than using naked naked collateral. However um there's also demand for like other types of you know you wouldn't want to uh trade per like a really high risk um like high yielding high-risk asset. Um so if the yield if the if the yield and risk was a little bit too high then it becomes less

good collateral. Likewise um when you are uh like on a DEX for example like spot traders typically um don't want to um trade yield bearing assets. I mean you even look at like STE has some integrations on centralized exchanges and the trading volume is like one10enth or something like that of naked ETH. That might not be right but I'll double check my numbers after this. Um but either way we know that like naked ETH and naked assets get traded a whole hell of a lot more than um yield bearing tokens. And it 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 that's not what the market maker's on. So there there's room for

assets that target different use cases. Collateral use cases probably lend better to yield bearing tokens. um uh trading payments um and like um sort of what I would describe as 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 um then you know a wrapped Bitcoin is probably better and I actually think that like you know I think Lombard um sort of proved out all 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 Lumbard in in some form. And so if users want a a wrapped Bitcoin, a stake

Bitcoin, or anything in between, like we will enable their users to do that to service whatever use 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. Uh trading on Bitcoin is like trading Bitcoin on central exchanges is is like the number one use case for BTC 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 um shitcoins that are trading on chain be traded with Bitcoin pairs, Bitcoin becomes this like onchain unit of account, you start to see spot trading come on chain. Um I mean, there's some there's some precedent for this. I mean, we saw like, you know, Hyperlid spin up a two of three multisig brand it 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 DeFi 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, uh, Bybit or Binance having their own sort of, um, custody system or or bridging protocol for a wrapped asset within the protocol. Um, so anyway, there's probably a lot more discussion to be had around that. Let's

talk about the other side of this. And I I think that's kind of the the interesting challenge I see here, which is that obviously a lot of people have Bitcoin, right? They've been holding Bitcoin for a long time and they're like, "Ye on Bitcoin sounds great, right? I I want 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 a right a 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, right? Maybe they want to borrow stable coins to maybe buy more bitcoin and 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 on a is actually very cheap, right? 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 uh you know substantial like yield on Bitcoin. So where do you and then that of course like so far right if people have staked Bitcoin then you know where does the the yield came from come from I think it was mainly the Babylon airdrop right and then of course people uh I'm sure are expecting that you know there's going to be lumbar token and if you hold LBTC you're going to get some some Lumbar token right of course we don't know any details there we don't know how much you know what kind of yield that that converts

But but of course in 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 uh and and that can work well but then at some point right you need to have a sort of like real yield right I think on layer we see this right now too where you know TVL is going down a a little bit. The yield that you earn from restaking ETH is going down as well. And sort of, you know, the where's the 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 this is a great question, one I get very often and I'm going to try to tie it into a holistic answer that I think will tell a lot about like 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 or more fundamentally a better way of putting it is like the creation of Bitcoin capital markets on chain is missing right now. Uh, 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 Salana or some other chain and never have to touch Bitcoin mainchain, but be holding a secure asset and using it as if it were underlying Bitcoin within all the best DeFi protocols within onchain finance.

Then you would never actually need to go um ever somewhere else, right? You never need to go back to Bitcoin L1. you never need to go to centralized exchange. And so, um, we're sort of in the midst of, uh, like bridging the gap, right? The problem, I think, is that everyone's trying to skip the development of a fundamental Bitcoin DeFi ecosystem directly to fundamental yield. Like, why is there good yield for ETH and stable coins on chain? Well, because we built an entire DeFi 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 as 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. Um, but we haven't I I think we're still in the process of like developing really fundamental um onchain Bitcoin activity. But I I and and I I think it's coming, right? Like this is this is why I say, you know, Lombard has been, you know, reapproaching um the way that we think about onboarding Bitcoin into DeFi, not just as the form of a yield bearing token, but in other forms, too, to be able to service uh 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 gonna build a Bitcoin business on chain, it's kind of hard to do so because there's not great primitives. Uh, 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 um 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 onchain defy or rather onchain bitcoin applications rather than going to build uh, you know, centralized exchanges and and like um 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 yield for Bitcoin comes from a very similar mechanism to that of IEG layer where third-party chains or um or services are paying for validators to um 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 LPTC comes from. But um I think there's so many other sources of yield that will develop in DeFi over time. And maybe the one you know I said like oh bab you know the introduction of an exogenous incentive

helps us to kind of like speed things up or 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 onchain. So there is plenty of Bitcoin yield. Let me be clear. It just mostly exists offchain, 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 um 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 offchain and bringing that onchain. So like token there's got to be some sort of tokenized lending product I think out there has to be you know tokenizing the basis trade like what Athena did but this time um 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 offchain Bitcoin yield that people have been using you know have been you know all all of the largest miners and um institutions have had access to now is going to become um widely accessible. So uh there is there is a lot to develop I think for the Bitcoin ecosystem but we are 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 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, uh allowed them to start like innovating like start trying to build the next cool primitive.

So like one of my uh hopes like I think we'll know Bitcoin DeFi has been successful when like the next IGEN layer or the next Celestia or some other form of like you know really big DeFi innovation is is built from Bitcoiners not from users of another chain. Um we'll see how quickly that comes to fruition but you know so I want to talk about staking as a as a form of Bitcoin as a source of Bitcoin yield. So I I see uh I see a big big challenge uh with that proposition that I think we we have seen uh play out on Ethereum uh with IGEN layer and restaking and it's basically the following right so if

you're like let's say let's take Solana as an example uh you know Salana has a lot of inflation right it pays like lots and lots of money in soul uh to stakers But you know where does that money go right? it goes to Salana holders and Salana holders you know I'm a Salana holder uh you know I'm staking Salana I'm just accumulating more Salana I'm like happy right like and 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 a so from a protocol

perspective you So it's 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 Salana uh you know on an exchange or they're trading or whatever and they don't stake and then then there's like some some redistribution to those staking uh you know and then you is now the staking yield 3% or 10% it doesn't matter that much right uh now of course you have some debates you know we had recently in Salana the SIMD proposal

a lot of debate about this you know opinions were kind of uh 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 reststaking right because if restaking I'm launching some protocol on layer I have my native token of the protocol. I'm now paying that protocol token to the ETH uh restakers. Yeah. And and they just want higher they want ETH, right? They want more ETH. Uh they don't want, you know, 10 different protocol tokens. So then either those people sell it or they use some sort of LT and they sell it for for ETH. So now you basically have well if your inflation if

you pay 1% that's 1% sell pressure on your token if you pay 5% it's 5% sell pressure on your token right so it it starts being like much more of like a real direct cost and and I think we have seen the kind of consequence of that which is you know you have all these abs on layer and they basically all pay zero rewards right now they've sort who were like free riding on IGEN layer having the IGEN incentives and basically funding this all you know those are kind of running out but now okay these protocols still they you know they're very hesitant right to pay anything uh 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 sell 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 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 staked collateral uh rather to be used as yeah as staked collateral as opposed to some other

asset. And um I think what I layer did was open up all of our minds to a world where uh economic security can be provided by any asset, not just the native token. And I think when we really dive down to it, the the more we get to first principles, the more we realize that like native tokens of chains are used uh as collateral. Um because uh like you said, there's like it's some mechanism to reduce sell pressure. It locks up tokens for a little while. It like feels kind of comfy and cozy. It it basically is like I I think that all of the logic of using native tokens as your

staking token is actually something else. It's basically like we you like projects think that they're the 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? You like, oh, um, you know, because what I think is like it's interesting to hear your comments around sell pressure, but um, another way of thinking it is like let's say your inflation is five or 10% to pay for staking rewards. Um, you're probably going to see a whole hell of a lot more sell pressure than if you're paying onetenth 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. Uh, 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, uh, you know, uh, 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 like locked up to reduce sell pressure and I need to have this staking mechanism to get people to, like you said, to re redistribute um 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 that is

a question I think a lot of projects are asking themselves right now. 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 onetenth 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 sell pressure. 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 I don't know if I totally agree with you here because like if if you like let's say let's take the Salana example, right? Like is it is it really a cost, right? because you just it you know if you take like uh let's say we take the analogy of like a company and the company you know just issues more shares to the share 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 uh in in a few places one is the the amount that goes to validators

right so the validator part is then basically the commission on the inflation Right? But let's say it's the inflation is 10% and the average commission is 5%. Okay? Now you have like maybe half a percent. Right? And and then and then I think the other part is uh 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 received like you know 8% on a year they have to pay maybe 2% taxes. uh 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 uh the you know the you know it's not it doesn't really like I mean it's an empirical question I guess to what extent um you know to what extent inflation rate for proof ofstake networks uh is is associated with sell pressure right like yeah I 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 uh it yeah it's it's a it's a good question right but then in 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 my take a little bit on this at the moment you know the kind of debates around oh should investors be allowed to stake or like maybe we minimize staking yield and of um 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 I have some opinions on that right because basically if you are if you say investors can stake and their staking rewards are liquid then of course they can sell them right so that may lead to real sell pressure right but then the flip side of course is that if you don't

have that Then it's just all of the sell 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 sell pressure. You just defer sell pressure. Yeah. Right. Exactly. And and that feels like a little bit of a short-term gimmick, right? Where you say like, hey, you want to basically inflate the FTB until the lockups come, right? So maybe for a year or so, but but then you still have it and then you have more of it because because all the of course all the Celestia investors for example, you know, they could stake sell their maybe

sell their staking rewards. Now they've already taken sub substantial amount of profits, right? Have liquidated some of their positions. The on lockcoms, they probably sell less, right, than they would otherwise. Yeah. Uh I I mean I I I think I think um 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 sell pressure. Uh that'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, uh or or rather embed this in the core protocol. I think doesn't necessarily always make make sense. And also, I mean, it's like I kind of think it's it's 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? Uh and I think um I mean, look, I used to I used to work for a uh a holder of a lot of major proof ofstake tokens, and I can tell you that, you know, as much as it might seem like those tokens are just being redistributed, uh yeah, uh I I think deferred selling is probably a 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 uh going income. So I don't think it's all like well I I think if you have lock tokens and then you earn liquid rewards for sure that's going to create real cell pressure. No no no question. Right. But uh but I guess my point there is I don't think it's so much like it increases the overall cell pressure. It just uh it shifts it forward right and it smoons it out. Now you know what's better here. It's a it's a hard question. Of course, it's a fair point for it. Hey, I actually have one more thought on on Salana, though. If you think of it this way, like if we broke

out Salana's value right now, we we would probably ascribe most of the value to like some sort of perceived economic monetary premium, right? I think. And then I would I would prescribe some smaller amount to like uh I don't know like revenue generation or um 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 Salana within DeFi, right?

Like in the same way we're talking about Bitcoin becoming this this onchain primitive, I think a lot of people see value in having soul or ETH as these like monetary assets that are sitting in liquidity pools as um as like uh the unit of account within the ecosystem where people are using them to pay for stuff. Uh, so somebody's paying for that. And in this case, it's like if if the goal was actually like if most of the value is ascribed 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 that 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 DeFi they do they do get taxed there. I think that that is absolutely correct and maybe you don't want that, right? I mean that's I think where we have seen now some interesting uh innovations with uh bar chain and initia right where they're basically uh using their inflation to both pay for you know the security and staking but also for liquidity uh and and I do think that is something that makes a lot of sense to me and I I would expect I I you know it's still I think TBD if you know the particular implementation and approaches sort work in the longer term, but at least as a

general direction, I do think that is something that's going to I 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 onchain trading between maybe bitcoin and other assets and then people earning like um fees from uh from dexis you know for liquidity provisioning as a yield do you think that's going to become a big yield source a 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 um trading itself itself to me is like the best

representation of fundamental usage of 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. Um, borrowing it, lending it, using it as collateral and all these things. Like I to me that that like trading volume or that trading number that I'm sort of like thinking about in my head as like a KPI is is like the ultimate yield source is probably still lending and it's um it's like farming per funding rates and all these traditional yield sources. it's it's um you know uh selling selling calls and stuff but I think like you need trading activity onchain. You need speculative activity to sort of like bulk up liquidity to the point where you can build all these use cases that that

we're describing. If you have really liquid onchain markets, then you can build all the cool use cases that get people to actually use their Bitcoin and earn yield on top of that. It's just a primitive for for building an ecosystem on top. So you guys are also launching uh or have launched a Lombard chain. Um what's what's the vision for Lombard chain? So Lombard initially started off as a sort of a permissioned chain. We had we built on raft consensus. There were only a few validators. Um in order to scale up the bridge and onboard new consortium members um like the ones I mentioned, we decided BFT consensus was the best way to do it. Um so we really built a uh you know sort of a consensus mechanism or

built this um Cosmos SDK chain um specifically to operate the the Bitcoin bridge. So we we did that out of necessity. Um now that we have this primitive I think there's a lot of a lot of uh potential opportunity here. Um you know the most obvious of one is Lombard mints all of these tokens on um on chains and in in other ecosystems right? So like you deposit Bitcoin into Lumbard, we mint a representation of that on ETH mainet. Um Lumbard ledger itself could just become the tokenization layer for all 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 a central hub and a central kind of like a a neutral sediment layer effectively. Um, so this is this is definitely something we've been considering, but you know, I think we're um I think part of our strength as a team has been to break down um uh you know, to to break down things that we see in the market into fundamental problems that are pertinent enough to need to be solved. Uh 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 um to you know the best of its ability because at the end of the day I do see a lot of

demand from users like I I don't know that um sometimes I think people build like Bitcoin L2s and build like native ecosystems uh uh and 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 cosmos or something like that. Um uh when really you know the market is just asking for uh for you know EVM use cases directly in you know next to a or something like that. So I think we're um 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 um, you know, app developers um, build Bitcoin use cases a little bit better. Um, right now we just have an SDK that sort of connects um, uh, allows apps to integrate, you know, Bitcoin deposits directly into their um, into their app. Um, you know, all the abstraction is sort of happening under the hood for the Bitcoin bridge. Um uh my assumption is that more more use cases will um 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. Um there has traditionally been a lot of adversion to you know putting your Bitcoin to work like letting it leave um you know letting it leave cold storage and start participating on chain. Um and in particular I think there's been a lot of um 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 onchain 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 onchain is only going to grow. Um, but there is a world I could see where um, you know, the defenses for these or or sort of we keep running into hiccups that just prolongs this battle quite significantly in my view. Um, you know, timing is kind of everything when it comes to um, uh, when it when it comes to like having successful project and um, you know, we have, you know, things sped up exponentially with the introduction of of Lombard and Babylon earlier um, last year, but um, I think to keep up that momentum, we're going to need, you know, the Bitcoin ecosystem to

continue to get around with this. So um, you know, slowly but surely things are happening. So, I don't think this is like a huge concern, but it's certainly it's um certainly something that's on my mind all the time, you know. Um am I in the same way I'm sitting here saying like, you know, we want to, you know, we want uh to produce solutions to pertinent issues like the most the most pressing issue that a user has. Um I I think I'm always wondering like how soon will Bitcoin holders come around to this uh to to some of this stuff. Um we're sort of addressing it in pockets. So it's like we started with the lowest risk uh sorry most riskaverse 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 um

the speed at which I can onboard those people I think is um is my only question not whether we'll be able to onboard them. So there's a lot of Bitcoin L2s, Bitcoin kind of side chains that have, you know, various degrees of, you know, trust assumptions, very degrees of linkages to Bitcoin. But then of course there's also a lot of interest from um chains like Salana, Ethereum Sui uh to have Bitcoin on those chains and have uh Bitcoin ecosystems there.

Do you 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 I have a pretty strong opinion on this. Um most Bitcoin L2s do not enable anything net new fundamentally. They are a Bitcoin bridge plus an EVM pallet. um that is no better than a Bitcoin bridge like Lumbard and the Ethereum ecosystem that has some of the best DeFi developers in the game. At the end of the day, users want to use the best applications. They want to use A and Drift and Hyperlquid. They don't want to use uh a fork of a fork of a on some, you know, um second rate

ecosystem. So, I think that if I'm if I'm a Bitcoin L2, what I'm really doing right now is I'm soularching. 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 who are doing this who are exploring trustless mechanisms that will allow them to onboard Bitcoin capital that you probably couldn't onboard otherwise with like a a trust minimized mechanism. So there are there is light at the end of the tunnel but at the end of the day it's like um and I obviously have thought about this a lot because I used to invest in DeFi protocols at Polychain. like there are only a couple ecosystems where we really see true DeFi innovation occurring. Um and it's like you know ETH mainet Salana base um I think you see some really cool stuff

happening in the move ecosystems and some stuff popping up in in in um bar chain and mega eth and some of these new ecosystems but um you know the it 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 you know existing ecosystems Ethan Salana mainly. Um so that's kind of been the focus. What are the most important milestones that are coming up for you guys? Yeah.

Uh I think significant milestones are um it's it's all in service of what we're sort of describing as the Lumbard evolution. So, uh, more chains is sort of in line with the distribution of the homogeneous project, uh, um, homogeneous, um, uh, product that we've shipped. And now everything is about breaking things apart. So, uh, over the course of the next couple months, we'll be introducing new Bitcoin primitives. We will be, um, diversifying the security options for the underlying Bitcoin. We will be launching institutional products that I think will be quite big structured products with um some big folks including and and some other Bitcoin yield primitives that'll be great. Um and um uh yeah the name of the game is on board as much liquidity

as possible in you know whatever you know uh yield or utility use cases that people are thinking about. Um Lombard kind of continuing to be the home for Bitcoin finance in whatever whatever way it 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 um even when incentives um you know end. So um 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 um yeah we'll be here for years to come trying to do the same thing. So again hopefully uh Bitcoin community gives us uh helps us out a little bit and helps us onboard Bitcoin sooner rather than later. But um either way,

we're going to make it happen. Cool. Well, thanks so much for coming on, Jacob. Really enjoyed it and excited to see how the Bitcoin DeFi ecosystem is going to play out and and the the role Lombard's going to play in this. Of course. Yeah. Thanks a ton for having me. I've been a longtime listener of the EPCenter podcast, including in the early days back in like, you know, 20 2018 2019. So, it's uh it's a real privilege to have come full circle. Yeah, absolutely. Thanks so much, Jacob.