Flow Traders borrows stablecoins collateral-free in Lombard’s $1 billion Bitcoin vault pilot
The new model links institutional stablecoin borrowing with Bitcoin holders seeking yield, potentially reshaping how regulated firms access decentralized credit.
Flow Traders, the Amsterdam-based market maker, borrowed stablecoins through Lombard Finance’s new Bitcoin Onchain Credit Strategy on July 23 without posting any collateral of its own, the first time a regulated trading firm has tapped Bitcoin-backed credit this way, according to Lombard.
Unlike conventional DeFi lending, where borrowers must overcollateralize their loans, Lombard’s latest structure allows Flow Traders to access stablecoin liquidity without posting its own collateral directly onchain. Instead, Bitcoin deposited by users into Lombard’s Bitcoin Earn vault serves as collateral coverage through Cap’s decentralized credit marketplace.
The launch signals a significant shift in how institutional firms could interact with decentralized finance while providing Bitcoin holders with an additional avenue to generate returns from idle assets.
Flow Traders accesses stablecoin liquidity without posting collateral
The new Bitcoin-backed stablecoin credit strategy operates through Cap’s automated credit marketplace on Ethereum. Bitcoin deposited into Lombard’s Bitcoin Earn vault is delegated as collateral, allowing approved institutional borrowers such as Flow Traders to obtain stablecoin financing.
This structure differs from traditional DeFi lending, where borrowers typically lock assets worth considerably more than the value of the loan. Instead, collateral is supplied by separate Bitcoin depositors who receive underwriting premiums generated by institutional borrowing demand.
Flow Traders, which has provided digital asset liquidity since 2017 across centralized exchanges and institutional bilateral markets, becomes one of the first regulated trading firms to test the model.
Jacob Phillips, Chief Executive Officer of Lombard Finance, described the arrangement as an important milestone for institutional participation in decentralized finance.
“By separating the borrower from the collateral provider, the parties involved have made it possible for regulated, institutional trading firms to tap into onchain credit for the first time,” Phillips said.
Cap’s protocol isolates collateral assigned to each borrower instead of pooling it across multiple credit positions. If the collateral backing a particular loan falls below required safety thresholds, the protocol can liquidate or slash delegated assets to repay outstanding debt, reducing contagion risk across the system.
Bitcoin Earn creates new yield opportunities for depositors
For Bitcoin holders, the Bitcoin-backed stablecoin credit strategy introduces another source of yield beyond conventional staking or lending products.
Users can deposit native Bitcoin, LBTC, BTC.b or Wrapped Bitcoin (WBTC) into Lombard’s Bitcoin Earn vault and receive BTCe receipt tokens representing their deposits. Those assets are then professionally allocated across multiple yield-generating strategies rather than concentrated in a single lending protocol.
According to Lombard, Bitcoin Earn has accumulated more than $1 billion in deposits from over 38,500 users, highlighting growing institutional and retail interest in managed Bitcoin yield products.
The initial vault is managed by Sentora, while Veda provides the supporting infrastructure.
Flow Traders pays a fixed annualized borrowing premium, which is distributed to Bitcoin depositors supporting the loan. This creates a direct relationship between institutional financing demand and investor returns, making yield less dependent on broader DeFi market conditions.
Michael Lie, an executive at Flow Traders, said the strategy connects Bitcoin holders with institutional financing activity that is “less correlated to DeFi market conditions.”
Despite the attractive yield opportunities, Lombard stresses that returns are not guaranteed.
Withdrawals of BTCe can take up to 14 days and are settled in LBTC regardless of the original deposited asset. The company also highlights risks associated with smart contracts, liquidity constraints, protocol strategies and potential software vulnerabilities.
Cap similarly warns that delegated collateral could be slashed if a borrowing institution becomes undercollateralized, meaning users remain exposed to defined credit and technical risks.
A key component supporting the Bitcoin-backed stablecoin credit framework is Chainlink’s Cross-Chain Interoperability Protocol (CCIP), which enables BTC.b assets on Avalanche to move securely into Ethereum, where Cap manages its lending infrastructure.
The integration significantly broadens the amount of Bitcoin liquidity available to support institutional borrowing while allowing users from multiple blockchain ecosystems to participate.
The move follows Lombard’s decision earlier this year to adopt Chainlink CCIP as its exclusive cross-chain infrastructure for more than $1 billion worth of LBTC and BTC.b assets, replacing LayerZero after reviewing its bridge architecture.
The transition also builds on Lombard’s October 2025 acquisition of BTC.b and its supporting infrastructure from Ava Labs. That transaction included BTC.b’s established integrations throughout the Avalanche ecosystem, with Lombard outlining plans to expand the Bitcoin-pegged asset across Ethereum, Solana and additional blockchain networks.
Cross-chain interoperability is increasingly viewed as essential infrastructure for institutional DeFi adoption because it enables capital to move efficiently between networks without fragmenting liquidity.
Pilot could reshape institutional DeFi lending
The Bitcoin-backed stablecoin credit pilot represents an alternative approach to decentralized lending, one designed specifically with institutional participants in mind.
Instead of forcing borrowers to lock excess collateral, Lombard distributes responsibilities among multiple participants. Flow Traders receives stablecoins, Bitcoin Earn depositors provide collateral backing, Cap manages loan issuance and monitoring, Symbiotic supplies shared security, while Chainlink facilitates secure cross-chain asset transfers.
The architecture aims to improve capital efficiency without eliminating lending risks.
The system remains dependent on several interconnected components operating as intended. Any failure involving Lombard’s vault infrastructure, Cap’s lending contracts, Symbiotic’s security layer, Chainlink’s interoperability services or borrower repayment obligations could impact user funds, borrowing operations or withdrawal timelines.
So far, Lombard has not disclosed the size of Flow Traders’ pilot loan, the stablecoin being borrowed, repayment terms or interest rate. The company has also not identified additional institutional borrowers expected to join the program.
Even so, the initiative demonstrates how decentralized finance is evolving beyond retail-focused applications toward infrastructure capable of serving regulated financial institutions. If successful, Bitcoin-backed stablecoin credit could offer a scalable framework that aligns institutional demand for liquidity with long-term Bitcoin holders seeking sustainable yield, opening a new chapter in the convergence of traditional finance and onchain capital markets.
