Bitcoin Capital Marketization: The Next Cycle Engine of On-Chain Finance
This article is from a contribution, does not represent the views of ChainCatcher, and does not constitute any investment advice.
Long regarded as the "digital gold" of the crypto world, Bitcoin is sought after for its store of value and inflation-fighting properties, attracting a large number of long-term holders. However, with the rapid development of on-chain finance, Bitcoin's unfully untapped potential in terms of capital efficiency is becoming increasingly prominent. Ethereum has spawned the liquid staking token (LST) ecosystem through the staking mechanism - stETH not only allows ETH holders to earn staking income but also improves DeFi liquidity and capital composability. In contrast, while Bitcoin continues to lead the market with a market share of about 60% and a market capitalization of about $2.4 trillion, its on-chain operability, yield generation, and composability are limited for a long time – leaving huge room for BTC DeFi development.
Over the past year, the focus of discussion in the crypto market has gradually shifted from short-term speculation to asset efficiency and on-chain income generation. Ethereum's staking economy has matured, and liquid staking assets such as stETH have unlocked new capital use strategies: users can earn staking income while deploying these assets into DeFi to stack additional income. At the same time, Bitcoin, as the largest crypto asset by market capitalization, has always lacked a similar mechanism. Most BTC holders either choose to sit idle or rely on centralized exchanges for limited returns, limiting their ability to actively participate in on-chain capital operations.
Bitcoin's composability challenge has also become one of the focuses of market discussion. With the rise of the multi-chain ecosystem, investors are no longer satisfied with using BTC only as a store of value, but hope that it can generate yield, serve as collateral for lending, and participate in the derivatives market. This anticipated change has driven communities and institutions to explore BTC liquidity innovations – especially in Asia, where DeFi adoption is accelerating and BTC holders are experiencing rising demand for secure yield channels.
In this context, Lombard launched LBTC, an interest-bearing Bitcoin asset. LBTC is an institutional-grade yield-bearing Bitcoin that is 100% backed by BTC and freely composable in DeFi. Its passive income comes from the Bitcoin staking protocol that stakes the underlying BTC to Babylon, allowing fund distributors to grow their assets while maintaining exposure to Bitcoin Core. LBTC has increased yield attributes compared to WBTC; Compared to decentralized packaging solutions such as tBTC, LBTC has advantages in terms of security and liquidity. The launch of LBTC fills a critical gap in Bitcoin staking liquidity, enabling BTC investors to participate in on-chain "capital operations" like ETH holders.
Compared with other platforms, LBTC's market positioning is very clear: Babylon provides an underlying staking protocol for technical node operators; EtherFi provides ETH liquid staking for the ETH community; Ethena offers synthetic USD yields through perpetual contracts and arbitrage strategies; LBTC focuses on BTC holders and institutional investors, balancing low volatility and cross-chain composability, allowing users to deploy capital efficiently while maintaining security. 
From the perspective of market performance, since its launch in September 2024, LBTC has set a record, surpassing $1 billion in TVL in just 92 days. More than 80% of LBTC is active in DeFi, used for lending, liquidity, and re-staking strategies, attracting more than $2 billion in new liquidity. LBTC is also an important part of Babylon's Bitcoin staking protocol, accounting for 40% of the market share and deeply cooperating with Finality Providers such as Galaxy, Figment, Kiln, and P2P. Top DeFi protocols, including Aave, Maple, Spark, and Morpho, have incorporated LBTC into institutional-grade collateral assets, providing BTC holders with low-risk, composable capital utilization capabilities. 
In terms of security and technology, LBTC also maintains its lead. Lombard has built a multi-layered security model that combines institutional consortiums, audits, multiple approvals, and timelocks to ensure the security of staked BTC. Since its launch, LBTC has never had an unpegged event and achieved transparent reserves through on-chain PoR (Proof of Reserves), further enhancing user confidence. This security and transparency make LBTC a "high-quality Bitcoin asset," similar to AAA products in traditional finance.
LBTC's cross-regional presence also highlights its strategic potential. The Lombard SDK has integrated Binance with Bybit, facilitating Asian users to participate in BTC DeFi. LBTC is already available on chains such as Base, Sui, Katana, BNB Chain, and more, providing innovative tools and liquidity infrastructure for DeFi developers in China, South Korea, and beyond. Combining low-risk returns with multi-chain composability, LBTC is not only a core asset for DeFi users, but also opens up new on-chain income channels for long-term BTC holders.
In terms of comparison, LBTC inherits the logic of ETH liquid staking (stETH model) but applies it to the BTC market, solving the long-term lack of on-chain income and composability of Bitcoin. LBTC has increased yields compared to WBTC; LBTC offers ease of use, tradability, and DeFi composability compared to Babylon; Compared with EtherFi, LBTC focuses on BTC low-volatility assets and multi-chain deployment; Compared to Ethena, although it has different asset classes, it also offers on-chain capital appreciation tools. These contrasts clearly demonstrate LBTC's unique value and strategic positioning.
Comparison table:
From the perspective of independent researchers, BTC's on-chain liquidity market still has great potential for growth in the future. As Bitcoin is gradually integrated into institutional asset management and DeFi products are more deeply integrated with BTC, liquid staking assets such as LBTC will become mainstream investment vehicles. Especially in the Asian market, there is a strong demand for low-risk, high-transparency, and highly composable BTC products, and LBTC has verified the feasibility and market acceptance of the products. For investors, early participation in such assets not only provides basic returns but also gives them a first-mover advantage in the expansion of the financial ecosystem on the BTC chain.
Overall, LBTC is not only a key node in Bitcoin's evolution from a store of value to an on-chain capital market, but also has the potential to become a cyclical engine driving the financialization of BTC on-chain. Its core advantages in security, liquidity, yield, and cross-chain composability enable BTC holders and institutional users to unlock capital efficiency just like in the Ethereum ecosystem. In the next cycle, such products will reshape BTC's role in on-chain finance, transforming it from "digital gold" to a fully functional capital market and opening a new growth curve for the entire crypto industry.