Lombard, a company building Bitcoin-based lending infrastructure, plans to partner with Bitwise Asset Management to enable financial institutions to earn yield and borrow using Bitcoin ($BTC) aims to unlock hundreds of billions of dollars of Bitcoin in institutional custody without moving the assets from custody.
The partnership was announced Tuesday at the Digital Asset Summit in New York.
Jacob Phillips, CEO and co-founder of Lombard, told Cointelegraph:
This breakthrough is the Bitcoin Smart Account, which connects two previously isolated worlds: institutional custody and on-chain finance.
According to an announcement shared with Cointelegraph, Bitwise will develop yield strategies that combine DeFi lending with tokenized real-world assets, while decentralized lending protocol Morpho will provide the lending infrastructure to borrow against Bitcoin.
The platform uses Bitcoin-native tools such as partially signed transactions and time locks to validate collateral, allowing positions to be expressed on-chain without transferring or rehypothesizing the underlying assets.
Rather than relying on bridges or wrapped assets, Phillips said, “Bitcoin Smart Accounts simultaneously eliminate all three risk vectors,” addressing custody, bridge and counterparty risks that have traditionally limited institutional Bitcoin lending.
The service is targeted at high-net-worth individuals, asset managers, and corporate treasuries who want to leverage long-term Bitcoin positions without changing their custodial agreements.
The rollout is scheduled for the second quarter of 2026, with Lombard planning to add more custodians and protocols to expand access to the entire institutional Bitcoin holdings.
Phillips said the model could change the way institutions approach bitcoin allocation.
We are moving Bitcoin from a pure store of value to productive institutional capital. That’s the shift.
That’s because Bitcoin in institutional investor portfolios has historically served as a passive store of value, with limited options for generating yield or accessing liquidity without exiting custody, incurring counterparty risk, or triggering tax events, he said.
Lombard estimates that $500 billion worth of the largest cryptocurrencies are held in institutional custody, with much of it remaining outside of on-chain financial markets.
Related: Signum Bank bets on Bitcoin lending with multi-signature custody model
Bitcoin DeFi gains momentum as vaults and loans expand
According to data from DefiLlama, the total amount of Bitcoin locked in DeFi is about $2.93 billion, just a fraction of the market cap of about $1.4 trillion. But efforts to turn Bitcoin into a yield-producing asset are starting to gain traction and momentum.
Bitcoin in DeFi. sauce: Defilama
One of the key drivers is the rise of on-chain vaults, which act like automated investment funds that deploy user funds across DeFi strategies. In January, Bitwise announced a partnership with DeFi lending protocol Morpho to launch a non-custodial vault designed to generate yield through overcollateralized lending.
This trend has accelerated in recent months. In February, Telegram added a revenue-generating vault to its built-in cryptocurrency wallet, allowing users to earn Bitcoin, Ether, and USDT within the app.
In March, Bitcoin staking protocol Babylon integrated with hardware wallet maker Ledger, making it available for user adoption. $BTC Can be used in financial applications while maintaining self-control through hardware-based transaction signing.
At the time of writing, Babylon Protocol leads Bitcoin-based DeFi with approximately $2.8 billion in total locks, while Lombard is in second place with approximately $744 million.
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