Lygos Aims to Banish Ghosts of Crypto Lending Collapse With Non-Custodial Bitcoin Model

Lygos Finance unveiled what it calls the first truly non-custodial bitcoin (BTC)-backed lending platform, aiming to transform the crypto credit market with institutional-grade design.

The platform is built on Discrete Log Contracts (DLCs) developed by Atomic Finance, which Lygos acquired earlier this year.

DLCs enforce bilateral lending agreements directly on Bitcoin’s base layer, with an external oracle attesting to facts like BTC-USD prices, but not controlling the funds. Borrowers and lenders sign Contract Execution Transactions, meaning settlement happens entirely on the Bitcoin blockchain without custodians or smart-contract risk.

“True non-custodial means exactly this,” CEO Jay Patel said in an emailed announcement on Thursday. “No participant other than the borrower and lender can move the funds.”

Lygos supports up to $100 million, with BTC collateralized in a native 2-of-2 script and USDC/USDT issued on Ethereum. The model avoids wrapped bitcoin or synthetic collateral, keeping custody native on both sides of the transaction.

During the 2021 crypto bull market, centralized lenders such as Celsius Network, Voyager Digital and BlockFi drew billions in deposits by promising high yields. But these returns were often built on risky, interconnected loans.

The system unraveled in 2022, when the collapse of the Terra-Luna stablecoin and the bankruptcy of hedge fund Three Arrows Capital (3AC) left many of the major lenders exposed. Mass withdrawals followed, forcing firms to freeze assets and file for bankruptcy. Customers lost much of their deposited funds, and the reputation of bitcoin lending took a severe hit.

By enforcing agreements directly on the Bitcoin layer 1, Lygos said it can restore confidence with transparent, enforceable contracts and no reliance on custodians. The debut marks a fresh attempt to reimagine bitcoin credit markets, this time with non-custodial rails.