Lombard reworks LBTC yield engine around Bitwise options desk
DeFi & Yields ·
The wrapped-bitcoin issuer is swapping its Babylon staking mechanism for a covered-call program run by Bitwise, aiming for a 2.5% net APY paid in bitcoin terms.
Lombard confirmed the change in a notice describing a shift away from protocol-level staking toward an options-based income strategy for LBTC, as detailed by wublockchain.xyz. Under the new setup, Bitwise will manage the options positions while up to 60% of the bitcoin backing LBTC becomes eligible for deployment into the strategy.
Custody of the underlying bitcoin will sit with Anchorage Digital Bank and Kraken Institutional rather than remaining tied to Babylon's staking infrastructure. That separation of asset management from custody reflects an effort to route yield generation through regulated institutional channels instead of on-chain validator rewards.
The rollout begins narrowly: a $10 million pilot tranche is set to go live the week of August 17, letting the team test execution and risk parameters before scaling. Lombard has indicated that a full allocation across eligible LBTC supply is planned for September, contingent on how the pilot performs.
For holders, the transition is designed to be passive. Lombard has stated that no action is required from existing LBTC holders, meaning the yield-source migration happens at the protocol and custody level rather than through any wallet-side redemption or restaking step.
What remains unclear is how the 2.5% net APY target will hold up once the strategy scales past the pilot size, and whether the covered-call approach introduces different volatility or drawdown characteristics compared with the Babylon staking model it replaces. Details on fee structure, counterparty terms with Bitwise, and how the September full-allocation threshold will be determined have not been disclosed.