Security & Risk Management
Designed for capital preservation and resilience
LcBTC is a conservative collateralized lending strategy, designed to avoid liquidations, limit cross-chain trust assumptions, and maintain high liquidity at all times.
While the strategy carries the inherent risks of DeFi (smart contracts, bridges, liquidity), it employs tight operational controls, automated monitoring, and conservative leverage parameters to minimize downside scenarios and protect principal.
In this section we highlight all of the risks associated with LcBTC, the actions taken to mitigate these risks, as well as plans to further manage and improve these associated risks.
This section will discuss the following risks:
Liquidation Risk
The strategy provides simple, overcollateralized lending exposure. Liquidation risk arises only if collateral values fall materially below required margin thresholds.
LcBTC primarily uses cbBTC and wBTC as collateral assets to lend against. Positions are exposed to liquidation risk during rapid BTC price declines, particularly when loan-to-value (LTV) ratios increase sharply.
Mitigations
Conservative target LTV of ~50%, supported by stress-tested risk buffers.
Strategy parameters calibrated to withstand 40–50% BTC drawdowns over short timeframes.
Continuous margin monitoring with automated deleveraging and cross-venue position management.
Exclusion of hard-liquidation venues where positions cannot be actively monitored or adjusted.
Protocol Counterparty Exposures
LcBTC’s underlying strategy is limited to audited protocols that have been battle-tested and approved by the strategy committee. Smart contract failure across any integrated protocol can impair a user's funds. Protocols used as part of the underlying strategy include:
On Ethereum:
Aave
On HyperEVM:
HyperLend (Official Aave instance)
Felix (Official Morpho instance)
HypurrFi (Official Euler Instance)
wHLP Exposure (max 25% of the strategy)
Mitigations:
Cap exposure per lending protocol on HyperEVM of max 20% of total counterparty TVL.
Deploys only what can be withdrawn or unwound automatically.
Continuous runtime monitoring (Hypernative + internal analytics) for anomalous events.
Bridging & Cross-Chain Liquidity Risk
Bridging Risk
LcBTC underlying yield strategy includes the movement of stablecoins between Ethereum and HyperEVM, which introduces a bridging risk.
To mitigate risk, the strategy only interacts with whitelisted bridge providers, including:
USDT0 (Official LayerZero Bridge: https://usdt0.to/transfer)
USDC native HyperEVM bridge
Cross-Chain Liquidity
The strategy relies on liquidity availability across chains to rebalance leverage, respond to market conditions, and manage borrowing costs. Illiquidity may slow or impair rebalancing.
Mitigations:
The strategy manager maintains liquid inventory on HyperEVM to support rapid deleveraging.
Selectively use institutional lenders (e.g., Maple, Arkis) to enhance depth and flexibility.
Key Management & Permissions
While LcBTC aims to minimize trust assumptions across its infrastructure, some remain necessary to execute core protocol actions.
In its current form, LcBTC uses a 3/5 multi-sig set up with Foredefi wallet, to sign or transact as part of its automated yield strategy. The entities included in the multisig with keys geographically distributed and controlled by distinct individuals that are part of the Looping Collective, including (2) UltraYield, (2) Staking Rewards, with an additional key controlled by (1) Foredefi.
Role
Signers
Style
Address
Owner
5
Fordefi
0xF03f36ed66Fea50da208BE87830ADD639d4Da41e
Entrypoint (Funds Holder)
2
Fordefi
0xfe80d994342C3DDf8f414d34d621C6a0b8c5dd6E
Strategy 1
2
Fordefi
0x3051954Ae939EFC0a1c8e3ac06Ef82c827fa8FEc
Strategy 2
2
Fordefi
0xBd9CA7427b1f1BB054Fa5Bdd54215101eF665755
Fee Recipient
0xB4c9cd2b7083F2a9452795f14c3aA73902e58580
Curator (Pauser)
2
Fordefi
0x9a81B594C3f6D8812A074A592C20172Fb786616A
As the protocol matures, there are plans to gradually reduce trust assumptions away from the Owner role, by migrating to a Safe wallet with a 3/5 multi-sig set up.
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