You just staked BTC and received LBTC or SolvBTC. Then you see that you can deposit these receipts into DeFi to keep earning, and the APY suddenly looks several times higher. Does it feel like you found a money-making secret?
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Wait. What you are doing is turning one layer of risk into three.
You are building a risk tower
BTC → stake to get an LST (risk layer 1) → deposit the LST into a DeFi strategy (risk layer 2) → the strategy re-stakes and loops again (risk layer 3)
Each layer adds new risk on top of the previous one. It does not create new returns out of nowhere.
Layer 1: The LST itself already has three risks
Before you put your staking receipt into DeFi, this asset already carries its own risks:
Custody risk: Your BTC is jointly managed by a group of signers. If these people are hacked or act maliciously, your BTC could simply be gone. Lombard LBTC has a risk rating of C (44/100), and its biggest risk scenario is "signers get hacked and BTC is stolen."
Slashing risk: Babylon staking itself has a slashing mechanism. If the validator you delegate to double-signs, part of your BTC could be destroyed.
Depeg risk: An LST can trade at a discount during market panic. LBTC may trade below the value of BTC in stressful market conditions.
This layer is already complicated enough. But what you do next is even more aggressive.
Layer 2: Depositing the LST into DeFi strategies — risks begin to stack
When you deposit LBTC or SolvBTC into a lending protocol, a liquidity pool, or a yield-optimizing vault, you are actively introducing new risks:
Risk A: External protocol hack risk
Your funds are routed to multiple external DeFi protocols such as lending markets, liquidity pools, and yield protocols. If any one of these external protocols is attacked, your funds could be damaged. Lombard Vaults deploy LBTC into five different DeFi protocols, which means you have to trust the code audits and security of all five at the same time.
Risk B: Collateral reserve collapse risk
SolvBTC itself is backed by multiple wrapped BTC assets such as WBTC, FBTC, and cbBTC. If any one of these wrapped coin custodians has a problem or depegs, SolvBTC collapses along with it. You staked Bitcoin, but the receipt you received is backed by a pile of different "Bitcoin IOUs."
Risk C: No withdrawal function plus redemption suspension — a double lock-up
Many liquid restaking protocols do not even have a withdrawal function enabled in the early stage. SolvBTC.BBN's redemption process was suspended for a period, and users could not directly convert the token back to BTC. They could only sell at a discount on the secondary market.
High-risk warning: If one protocol has a problem, your funds may get stuck. If two protocols have problems at the same time, you may not even get the chance to be stuck — your funds could go straight to zero. In April 2026, Kelp DAO's cross-chain bridge was hacked, losing $292 million, which directly pushed the industry to migrate from LayerZero to Chainlink CCIP. Nobody can withstand that kind of chain reaction.
Layer 3: Rehypothecation — the invisible bomb
This is the most dangerous layer, and also the easiest to ignore. When a platform re-stakes the assets users have deposited as collateral, the same BTC is simultaneously backing multiple sets of debt.
A real example: You stake BTC to get LBTC. You deposit LBTC into Protocol A as collateral to borrow stablecoins. Protocol A then re-stakes your LBTC into Protocol B as collateral for its own borrowing. Now the same asset is supporting your loan, Protocol A's borrowing, and Protocol B's protocol security at the same time. When the market drops, all three parties may need to be liquidated at the same time, but there is only one pool of assets available for liquidation.
During the stETH depeg in 2022, people who looped stETH as collateral and borrowed against it again and again ended up facing exactly this kind of liquidation hell caused by multiple claims on the same asset.
Summary: Risks do not add up. They multiply.
| Risk layer | What you are facing |
|---|---|
| BTC principal risk | Price volatility, overall market crash |
| LST protocol risk | Custody hack, slashing execution, depeg discount |
| DeFi strategy risk | External protocol hack, collateral collapse, withdrawal suspension |
| Rehypothecation risk | Multiple claims on the same asset, cascading liquidations, funds reused without your control |
You are not stacking yield. You are stacking the number of things that must not go wrong.
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Your next move
Open the DeFi strategy page you were about to deposit into, and ask three questions:
How many external protocols does it deploy into? If it is more than two, be careful.
Is the withdrawal function currently enabled? Check the latest community announcements.
If the LST depegs by 5% today, would your position be liquidated?
Write down the answers to these three questions, and then calculate the risk-reward ratio again.
