Lombard, a company building Bitcoin-based lending infrastructure, will team with Bitwise Asset Management to enable institutions to earn yield and borrow against Bitcoin ($BTC) without moving assets out of custody, aiming to unlock hundreds of billions of dollars in Bitcoin held in institutional custody.
The partnership was announced Tuesday at the Digital Asset Summit in New York.
Jacob Phillips, CEO and co-founder of Lombard, told Cointelegraph:
The breakthrough is Bitcoin Smart Accounts—connecting two previously isolated worlds: institutional custody and onchain finance.
According to an announcement shared with Cointelegraph, Bitwise will develop yield strategies combining DeFi lending with tokenized real-world assets, while Morpho, a decentralized lending protocol, will provide the lending infrastructure for borrowing against Bitcoin.
The platform uses Bitcoin-native tools such as partially signed transactions and timelocks to verify collateral, allowing positions to be represented onchain without transferring or rehypothecating the underlying assets.
Rather than relying on bridges or wrapped assets, Phillips said “Bitcoin Smart Accounts eliminate all three risk vectors simultaneously,” addressing custody, bridge and counterparty risks that have historically limited institutional Bitcoin lending.
The offering targets high-net-worth individuals, asset managers and corporate treasuries seeking to put long-held Bitcoin positions to work without changing custody arrangements.
The rollout is expected in the second quarter of 2026, with Lombard planning to add more custodians and protocols to expand access across institutional Bitcoin holdings.
Phillips said the model could change how institutions approach Bitcoin allocations:
We’re moving Bitcoin from a pure store of value to productive institutional capital. That’s the shift.
That’s because Bitcoin in institutional portfolios has historically functioned as a passive store of value, he said, with limited options to generate yield or access liquidity without exiting custody, taking on counterparty risk or triggering taxable events.
Lombard estimates that $500 billion worth of the biggest crypto is held in institutional custody, much of which remains outside onchain financial markets.
Related: Sygnum Bank bets on Bitcoin lending with multisignature custody model
Bitcoin DeFi gains traction as vaults and lending expand
Data from DefiLlama shows Bitcoin’s total value locked in DeFi at roughly $2.93 billion, a small fraction of its approximately $1.4 trillion market capitalization. However, momentum is beginning to build as efforts to turn Bitcoin into a yield-generating asset gain traction.
Bitcoin in DeFi. Source: Defillama
One key driver is the rise of onchain vaults, which function like automated investment funds that deploy user capital across DeFi strategies. In January, Bitwise announced a tie-up with DeFi lending protocol Morpho to launch non-custodial vaults designed to generate yield through overcollateralized lending.
The trend has accelerated in recent months. In February, Telegram added yield-generating vaults to its built-in crypto wallet, allowing users to earn returns on Bitcoin, Ether and USDT within the app.
In March, Bitcoin staking protocol Babylon integrated with hardware wallet maker Ledger, enabling users to deploy $BTC in financial applications while maintaining self-custody through hardware-based transaction signing.
At the time of writing, Babylon Protocol leads Bitcoin-based DeFi with about $2.8 billion in total value locked, while Lombard ranks second with around $744 million.
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