Lombard Shifts LBTC Yield Strategy to Bitwise-Managed Covered Calls, Targeting 2.5% Net APY

Lombard, a Bitcoin liquid staking protocol, has announced a major change in how its LBTC token generates yield. The project is transitioning away from Babylon Bitcoin staking and toward a covered-call options strategy managed by Bitwise, with a target of 2.5% annual net APY denominated in BTC.

LBTC, Lombard's liquid staking token, is designed to keep Bitcoin productive within DeFi while remaining backed one-to-one by the underlying asset. The yield it generates is a key differentiator in an increasingly competitive Bitcoin DeFi landscape, where protocols are racing to offer meaningful returns without compromising on security or liquidity.

Allocation and Custody Details

Under the new model, up to 60% of LBTC collateral assets will be directed to the covered-call strategy. The underlying Bitcoin will be custodied by Anchorage Digital Bank and Kraken Institutional, two regulated entities intended to address security and compliance requirements for institutional participants.

The rollout will begin with a $10 million pilot allocation during the week of August 17. Lombard expects the full allocation to be completed by September. Existing LBTC holders are not required to take any action — the transition will be handled automatically by the protocol.

Rationale Behind the Pivot

Lombard's previous yield model relied on Babylon staking, a widely used method for generating returns on Bitcoin. Babylon, which launched its mainnet to significant attention, has become one of the most prominent Bitcoin staking protocols, attracting billions in total value locked. However, Babylon's yield rates have fluctuated over time, prompting Lombard to seek a more predictable income stream.

A covered-call strategy involves holding the underlying asset — in this case, Bitcoin — while selling call options against it. The option seller collects a premium, which serves as the yield source. This approach can produce steadier returns compared to staking rewards, though it also caps upside potential: if Bitcoin's price rises above the option's strike price, the calls may be exercised, limiting gains.

Lombard is positioning the shift as a way to deliver more stable, risk-adjusted returns for LBTC holders. The decision also aligns with a broader trend across Bitcoin yield protocols, several of which have begun experimenting with options-based strategies as the DeFi ecosystem matures.

Institutional Credibility and Market Context

The involvement of Bitwise adds institutional credibility to the arrangement. Bitwise is an established crypto asset manager known for its index funds and spot Bitcoin ETF (BITB), bringing experience in regulated crypto product management to the covered-call strategy.

Custody by Anchorage Digital Bank and Kraken Institutional further addresses concerns around security and regulatory compliance — factors that remain critical for institutional adoption. Anchorage Digital operates as a federally chartered crypto bank, while Kraken Institutional serves institutional clients with regulated trading and custody infrastructure.

The pivot comes at a time when Bitcoin staking protocols face growing competition and scrutiny. Babylon has been a major player in the space, but its variable yield rates have led projects like Lombard to explore alternative approaches. By adopting covered calls, Lombard is betting that options-based yield will appeal to users prioritizing consistency over variable staking rewards.

The move is not isolated. Multiple protocols have started integrating options strategies to generate Bitcoin yield, reflecting an expanding toolkit within the DeFi landscape. For users, this means a wider array of yield-generating products, each carrying distinct risk-return profiles that warrant careful evaluation. The evolution also signals a broader shift in Bitcoin DeFi, where yield generation is diversifying beyond native staking toward more traditional financial engineering adapted for crypto-native assets.