r/cryptocurrency Apr 21, 03:13 PM
How a Lombard Loan against BTC actually works at a Swiss private bank (bank-custodied) If you bought BTC early enough that selling could mean a hefty tax bill and right now, selling also means locking in a 40% drawdown from ATH (at the time of writing this) you already know the appeal of borrowing against it instead.
The question most holders don't fully think through is where that collateral actually lives and who they're trusting with it.
The question is: Where do you take a Bitcoin collateralized loan safely?
There are three options: DeFi, CeFi, and a private bank. Most people in crypto know the first two exist and never hear about the third. It doesn't advertise, it doesn't have a landing page with a rate calculator, and you can't sign up through an app. That's not an accident.
What happened on Saturday?
An attacker minted 116,500 rsETH from thin air. Deposited on Aave. Borrows $196M of real ETH. Walks away. Aave's smart contracts worked perfectly the entire time.
That's the 30-second version of what happened on Saturday. Aave is now carrying an estimated $177–200M in bad debt, the WETH pool hit 100% utilization, $5.4B in deposits tried to exit, and AAVE is down 17% for the week.
Aave didn't get hacked. Aave got fed poison and ate it exactly the way it was designed to.
Aave / Compound (DeFi)
First thing worth saying: there is no real BTC on Aave or Compound Finance. As I’m sure you know, Bitcoin doesn't run on Ethereum. What you're actually posting as collateral is WBTC or cbBTC: IOUs issued by a centralized custodian who claims to hold 1 BTC in reserve for every token minted. WBTC's reserves sit with BitGo (and after the 2024 Justin Sun / BiT Global restructure, the custody arrangement is more complicated than most users realize). cbBTC is an IOU from Coinbase.
So before you even get to the smart contract, you're trusting a second institution you didn't sign up for: the wrapper issuer. If BitGo mis-manages reserves, if Coinbase freezes redemptions, if the wrapper depegs for any reason, your "BTC collateral" on Aave is suddenly worth whatever the market decides an unbacked IOU is worth. Which, as rsETH holders discovered on Saturday, can be a lot less very quickly.
Then on top of that you have Aave itself. Your wrapped-BTC-IOU sits in a smart contract. The contract is the custodian. Rates are variable and utilization-driven they can spike past 20% during exactly the kind of stress event you'd want to borrow through. LTVs are generous (70–80%) because the protocol can liquidate you in seconds.
If you're "borrowing against your Bitcoin" on Aave, you're not. You're borrowing against an IOU for your Bitcoin, posted inside a contract you don't control, priced by an oracle you don't audit, pooled with collateral you didn't choose.
Nexo (CeFi)
Your BTC sits in Nexo's omnibus accounts. You are, functionally, an unsecured creditor of Nexo. Rates run from 2.9% APR (Platinum tier, requires holding 10%+ of your portfolio in NEXO token, low LTV) up to 18.9% at base tier. LTV up to 50% on BTC.
What you're trusting: Nexo is sol