In recent years, the crypto market has seen a significant shift—from pure price speculation to an era of "asset efficiency" and "on-chain yield." Ethereum has been the first to benefit, with its staking economy and LST (Liquid Staking Token) ecosystem maturing rapidly. Assets like stETH not only provide ETH holders with stable on-chain yields but also enable direct participation in DeFi lending, market-making, and derivatives trading, creating multi-layered yield loops.

In contrast, Bitcoin’s on-chain capital efficiency remains in its "early stages." While it remains the core of the crypto world—with ~60% market dominance, a ~$2.4 trillion market cap, and the most robust consensus network globally—on-chain, BTC is largely viewed as "digital gold": a secure store of value but lacking composability, yield potential, and multi-chain liquidity. Most BTC holders either HODL indefinitely or rely on centralized platforms for limited interest, missing out on the vibrancy of on-chain finance.

BTC’s Composability Dilemma

The success of ETH’s staking model lies in its deep integration with smart contracts and the DeFi ecosystem, while the BTC mainchain lacks an equivalent execution environment. Although solutions like cross-chain wrapping (e.g., WBTC), sidechains, and bridges exist, several core pain points persist:

1. Lack of Native Yield—Cross-chain BTC is mostly wrapped assets, unable to generate yield naturally like ETH staking;

2. Fragmented Liquidity—Cross-chain assets are scattered across different chains and protocols, with insufficient scale to support large-scale capital deployment;

3. High Trust Costs—Whether through centralized custodians or multi-sig mechanisms, users must place additional trust in institutions or multi-party alliances.

These issues have kept BTC in an awkward state of "high value, low utilization." However, market expectations are changing. More institutions and DeFi teams, especially in Asia, are driving BTC liquidity innovation—aiming not only to provide secure yields for BTC holders but also to position BTC as a core asset in on-chain capital cycles like lending, stablecoins, and derivatives.

The Accelerating Role of Asian Markets

Demand for BTC DeFi is growing notably in Asia. The region hosts a large base of long-term BTC holders, alongside a high concentration of exchanges, infrastructure projects, and communities, enabling new products to gain rapid market traction when targeting the right use cases. An ideal BTC DeFi product must meet three criteria:

1. Low-Risk Yield—Avoiding high-volatility, high-leverage strategies;

2. Strong Composability—Seamless integration with mainstream DeFi protocols rather than existing in isolation;

3. Cross-Chain Convenience—Supporting multi-chain deployment to lower user barriers.

WBTC – BTC Wrapping and Liquidity

WBTC is the earliest wrapped BTC asset, bringing Bitcoin into the Ethereum ecosystem as an ERC-20 token, enabling participation in lending, liquidity provision, and derivatives trading. Its strengths lie in broad acceptance and high liquidity, with support from nearly all major DeFi protocols. However, WBTC inherently relies on centralized custody, requiring user trust in custodians and posing security and transparency risks. Additionally, it generates no extra yield, offering only composability—a major limitation for users seeking to maximize BTC’s value.

Babylon – Base-Layer Staking Protocol and Node Operators

Babylon focuses on providing Bitcoin’s base-layer staking infrastructure, targeting technical node operators. Its advantages include high security and decentralization, with rigorous node management and multi-layered validation ensuring BTC staking safety. It caters to institutional users, converting BTC into on-chain operable assets. For average users, direct use of Babylon’s protocol is complex, requiring technical expertise or reliance on derivative wrapped products. Babylon’s core value lies in providing base-layer staking capabilities for the BTC ecosystem, but liquidity and usability need further expansion.

EtherFi – ETH Liquid Staking and Cross-Chain Composability

EtherFi offers ETH liquid staking services, combining staking yields with DeFi composability. Users can easily stake ETH and deploy capital across multiple chains for yield stacking. Targeting the ETH community, EtherFi provides a low-barrier experience with cross-chain support. Compared to the BTC ecosystem, its model is mature but primarily serves ETH users, failing to address BTC’s yield and low-volatility needs.

Ethena – Synthetic Dollar Yields and Strategy Features

Ethena provides stable USD yields (USDe) via perpetual contracts and arbitrage strategies, appealing to risk-averse DeFi users. Users gain fixed on-chain yields while engaging in strategy combinations to enhance capital efficiency. However, its composability is limited, mainly focused on stablecoin pools and synthetic assets, offering insufficient flexibility for investors seeking broader BTC DeFi applications. Ethena showcases the potential for diversified on-chain yields but requires BTC-specific solutions to meet core market demands.

Lombard – LBTC: A Case Study in BTC On-Chain Yield

Against this backdrop, Lombard’s LBTC stands out as a representative case. Positioned as institutional-grade yield-bearing Bitcoin, it is 100% backed by BTC, generating passive yield by staking underlying BTC on Babylon’s Bitcoin staking protocol. BTC holders retain core exposure while earning stable on-chain returns.

Market Performance:

• Surpassed $1B TVL within just 92 days of launch;

• Over 80% of LBTC is active in DeFi for lending, liquidity provision, and restaking strategies;

• Attracted over $2B in new liquidity, capturing 40% of Babylon’s staking protocol market share;

• Deep collaborations with finality providers like Galaxy, Figment, Kiln, and P2P;

• Listed as institutional-grade collateral on Aave, Maple, Spark, Morpho, and others.

Security-wise, Lombard employs multi-layered safeguards: institutional alliances, multi-party approvals, time locks, audits, and on-chain PoR (Proof of Reserve). It has maintained peg stability since launch, nearing traditional finance’s "AAA-grade" security standards.

For cross-chain deployment, LBTC is live on Base, Sui, Katana, and BNB Chain, with SDK integrations for Binance and Bybit, opening direct BTC DeFi access for Asian users.

LBTC addresses BTC’s core on-chain yield challenges. While ETH’s LST model is proven, applying it directly to BTC requires balancing security, liquidity, and cross-chain deployment. LBTC first anchors yield via Babylon’s staking, then scales liquidity through multi-chain deployment and SDK integrations, achieving rapid network effects. If adopted as core collateral by more DeFi protocols or entering complex on-chain markets like stablecoins and derivatives, BTC’s on-chain capital efficiency could leap forward. LBTC may become an accelerator for this wave of innovation.

Overall Market Trends and Future Outlook

Globally, BTC’s on-chain capitalization is still nascent but holds immense potential. As the market shifts from price speculation to asset efficiency and on-chain yield, more projects are innovating across directions:

1. Multi-Chain Expansion and Interoperability: Broader DeFi cross-chain deployments will enrich BTC asset use cases;

2. Growth of Low-Risk Yield Products: Strong demand for stable yields will drive mainstream adoption of yield-bearing BTC products;

3. Increased Institutional and Regulatory Participation: Asian and global institutional investors are actively exploring on-chain BTC allocation, maturing the ecosystem;

4. Testing Ground for Innovative Strategies: Derivatives, restaking, arbitrage, and combo strategies will enhance BTC’s on-chain liquidity and capital efficiency.

Bitcoin is gradually evolving from "digital gold" to a dynamic on-chain asset. Diverse innovations are collectively advancing the BTC ecosystem, empowering long-term holders and DeFi users to unlock asset potential more efficiently. LBTC is just one example, illustrating a possible future path for BTC’s on-chain financialization—diverse, low-risk, composable, and cross-chain. As more technologies and products emerge, BTC will not only be a store of value but also a critical node in on-chain capital deployment.