Yield Strategy
LBTC’s yield comes from selling covered calls on Bitcoin, an income strategy institutional desks have run for decades, managed by Bitwise Investment Manager, LLC.
The strategy earns from Bitcoin’s volatility surface rather than its price direction, so it can generate income whether Bitcoin rises, falls, or trades flat.
How that yield reaches your balance is covered in Understanding Yield.
How Covered Calls Generate Income
A covered call is a two-sided trade. One party holds Bitcoin and sells the right to buy it at a fixed price (the strike) by a fixed date. The other party pays cash upfront (the premium) for that right. The seller keeps the premium no matter what happens next.
Bitwise runs this trade against the active allocation of LBTC’s backing, on repeat:
What the strategy never does:
- No leverage. Every position is fully covered by Bitcoin held in custody.
- No puts, and no directional view on Bitcoin’s price. Residual delta is bounded by the limits below.
- No physical delivery. Every option settles in cash.
- No lending or rehypothecation. The underlying Bitcoin is not lent, pledged, or reused.
Why the Target Is 2.5%
LBTC targets 2.5% net APY in BTC terms, quoted after the 20% protocol rewards fee. Only a portion of the backing is deployed into the strategy; the passive allocation earns nothing by design, and that is what keeps redemptions reliable.
How the Bitcoin Is Held
LBTC’s backing operates across two custody arrangements at all times. This split between an active allocation and a passive allocation is what lets LBTC pursue real yield while keeping redemptions reliable.
Behavior Across Market Conditions
| Market | What the book does | Outcome |
|---|---|---|
| Sharp rally | Short calls are rolled to higher strikes and spreads widened to cut delta, taking a controlled cost to reset | Temporary mark-to-market drawdown on the active allocation; full price upside retained |
| Sharp decline | Calls expire worthless and the premium is kept in full | Favorable for the strategy; elevated volatility improves re-entry premiums |
| Rangebound | Calls expire worthless cycle after cycle | Strongest environment; premium compounds across consecutive tenors |
| Volatility spike | Short vega positions mark down temporarily, then normalize as volatility mean-reverts | No realized loss unless positions are closed early |
Low volatility compresses income rather than producing losses. The 2.5% is not earned at the same level in every market condition, and it is a target, not a guarantee: yield fluctuates with Bitcoin market conditions, implied volatility levels, and deployment levels.
The base covered-call layer carries strategy risk (mark-to-market pressure on the active allocation during sharp Bitcoin rallies), income compression in low-volatility environments, and counterparty risk on OTC options positions. These risks are bounded by the custody structure: options are financially settled, Bitcoin never leaves Lombard’s segregated accounts, and the liquidity buffer is isolated from the strategy entirely. For the full risk breakdown, see Risks.
Managed by Bitwise Investment Manager, LLC.
Bitwise Investment Manager, LLC, the strategy manager, is a wholly owned subsidiary of Bitwise Asset Management, Inc. (“Bitwise”), a global crypto asset manager with more than $9 billion in client assets. Since 2017, Bitwise has established a track record of excellence helping investors understand and access the opportunities in crypto. Bitwise manages a suite of over 70 investment products in the U.S. and Europe, spanning ETPs, index funds, alpha and SMA strategies, and staking solutions. The Bitwise team of over 175 technology and investment professionals is backed by leading institutional investors and has offices in San Francisco, New York, and London.
The covered-call strategy has a 4.5-year operating history. From 2022 through 2026 YTD, gross historical returns have been positive in every calendar year, including the 2022 bear market, the recovery that followed, and the range of market regimes in between. Over that period, no short option position has expired in-the-money, and no Bitcoin has been called away. Past performance does not guarantee future results and covered-call strategies carry the risk of assignment in different market conditions.
LBTC runs a deliberately conservative implementation. The mandate disallows leverage, borrowing, and naked short positions and every position must be fully covered by Bitcoin held in custody. Only a portion of the BTC backing LBTC is deployed into the active strategy.
The 2.5% net APY figure is a target, not a guarantee. Yield is variable and depends on market conditions, Bitcoin implied volatility, and deployment levels. Past performance of the Bitwise strategy is not indicative of future results for LBTC.
Note: LBTC is not available to U.S. or U.K. persons or persons in other restricted jurisdictions. See the Terms of Service and the Risk Disclosures.
Verify the Strategy
You do not have to take the yield on faith. Lombard publishes a transparency dashboard refreshed every 24 hours, and the strategy metrics on it are attested by the strategy manager, Bitwise, and cross-checked against custodial records rather than self-reported.
Explore it on the transparency dashboard .
Next Steps
- Understanding Yield, How yield reaches your balance through the exchange rate
- Fees, The 20% protocol rewards fee and what is not charged
- Risks, The full risk picture across the protocol