Lombard Finance: Wrapping BTC in Promises

Lombard Finance: Wrapping BTC in Promises

Lombard Finance has released an SDK that lets custodial Bitcoin - like the kind stored on exchanges - be put to work in DeFi. The goal? To "activate" idle BTC by converting it into wrapped tokens that can earn yield through DeFi protocols.

Sounds good on paper. Why wouldn’t exchanges jump at the chance to turn BTC into LBTC, generate some yield, keep a share, and pass the rest on to users? It seems like a win-win proposal from Lombard Finance, right?

Wrong.

Yesterday, a plumber came to fix the pipes at my place. As he worked, he told me why he only accepts cash. “Banks used to store your money,” he said. “Now they lend it out. And when you try to withdraw it, they start asking:

• Why do you need it?
• What are you going to spend it on?
• Prove you're not funding terrorism!

Banks don’t want to give you your money back - because your money is not really there anymore.”

I don’t fully agree with him on the why behind tighter AML controls. But he’s got a point. And the same logic applies to crypto exchanges: if they start locking up your BTC in services like Lombard Finance, good luck trying to withdraw it when you need it.

Be careful. Lombard Finance claims to already be working with some major exchanges. To me, that’s not a reason to trust them - it’s a reason to stop swapping BTC on exchanges altogether.

At rabbit.io, we don’t give you an IOU - we give you your crypto. Directly. To your own wallet.