# \[Direct to AIP\] LBTC Oracle and CAPO implementation Update **URL:** \ **Category:** Governance\ **Created:** [July 17, 2025, 2:52pm UTC](https://governance.aave.com/t/direct-to-aip-lbtc-oracle-and-capo-implementation-update/22614 "2025-07-17T14:52:03Z")\ **Posts on this page:** 1\ **Showing post:** 2
**Author:** ![LlamaRisk](https://dub1.discourse-cdn.com/flex013/user_avatar/governance.aave.com/llamarisk/32/12865_2.png) [@LlamaRisk](https://governance.aave.com/u/LlamaRisk)\ **Post date:** [July 21, 2025, 8:51pm UTC](https://governance.aave.com/t/direct-to-aip-lbtc-oracle-and-capo-implementation-update/22614/2 "2025-07-21T20:51:41Z")
LlamaRisk supports the change to LBTC oracle setup and the implementation of CAPO for both LBTC and eBTC as Lombard turns LBTC into a yield-bearing token. This change will help Aave price the tokens accurately. [Lombard announced on July 15, 2025](https://x.com/Lombard_Finance/status/1945161892420575315) that yield-bearing LBTC will launch on July 22. This follows the Babylon Genesis Event, which introduced the BABY token. Previously, Babylon staking yield was distributed as points now convertible to BABY tokens, [claimable until July 22](https://www.lombard.finance/app/yield/) by users who staked using Lombard before April 6, 2025. Any unclaimed BABY will be converted by Lombard into LBTC and distributed as yield. This transition streamlines the process and makes LBTC a non-rebasing yield-bearing token. ## LBTC Oracle Lombard has deployed an on-chain accounting oracle, the [StakedLBTCOracle](https://etherscan.io/address/0x1De9fcfeDF3E51266c188ee422fbA1c7860DA0eF#code) contract, to publish the reserve ratio of LBTC. The `getRate()` function can be used alongside the existing Chainlink BTC/USD feed to price LBTC in Aave markets. Rather than computing the ratio in real-time, the oracle is designed to report a reserve ratio periodically updated by a trusted entity via the `publishNewRatio()` function. This trusted entity is a [Notary Consortium](https://etherscan.io/address/0xdad58DfA5c1a7a34419AFdBE1f0d610efeea95E4#readProxyContract), a 12-of-16 threshold set of EOAs, that collectively agree on a new LBTC: BTC ratio and a future `switchTime`. The contract implements a dual-ratio system to manage price transitions: `prevRatio` holds the currently active exchange rate, while `currRatio` stores the upcoming rate that becomes active at the specified `switchTime`. To constrain abrupt changes, the oracle includes a `ratioThreshold()` parameter, currently set to 1,000,000, which limits the maximum allowed price change to 0.1% over 24 hours (approximately 44% when compounded annually). LBTC’s yield, reflected in its oracle exchange rate via periodic updates, does not pose a risk to Aave or LBTC stakers, as atomic arbitrage is prevented by the [7–9 day unstaking period](https://docs.lombard.finance/lbtc-liquid-bitcoin/user-guides/unstaking-lbtc#introduction) and the low yield makes such strategies economically unviable. While minor DEX arbitrage may occur, it presents no bad debt risk to Aave from LBTC borrows due to the minimal daily price appreciation. The identity of the validator set used by the Consortium could not be confirmed, but it is likely comprised of the Lombard team. The owner of the oracle contract is the [LombardTimeLock](https://etherscan.io/address/0x055E84e7FE8955E2781010B866f10Ef6E1E77e59#code), configured with a minimum delay of 3,601 seconds (~1 hour). The Consortium contract itself is governed by a [3-of-5 Safe multisig](https://etherscan.io/address/0x251a604E8E8f6906d60f8dedC5aAeb8CD38F4892#readProxyContract#F9), also possibly under the control of the Lombard team. As the oracle contract is relatively new, no formal smart contract audits were available at the time of writing to publicly validate its security. ## eBTC Pricing On Aave, eBTC is priced using the [AccountantWithRateProviders](https://etherscan.io/address/0x1b293DC39F94157fA0D1D36d7e0090C8B8B8c13F#code) contract, which provides an internal exchange rate relative to a base asset, combined with the [Chainlink BTC/USD](https://etherscan.io/address/0xb41E773f507F7a7EA890b1afB7d2b660c30C8B0A) price feed. The exchange rate between eBTC and LBTC is derived from the `getRateInQuote()` function, where LBTC is used as the quote (base) asset. Currently, approximately [89% of eBTC on Ethereum](https://debank.com/profile/0x657e8c867d8b37dcc18fa4caead9c45eb088c642) is backed by LBTC. Given this high exposure, applying 95% of LBTC’s maxGrowth CAPO parameter to eBTC is reasonable for setting an upper bound constraint. ### Disclaimer This review was independently prepared by LlamaRisk, a community-led decentralized organization funded in part by the Aave DAO. LlamaRisk is not directly affiliated with the protocol(s) reviewed in this assessment and did not receive any compensation from the protocol(s) or their affiliated entities for this work. The information provided should not be construed as legal, financial, tax, or professional advice. --- _[View the full topic](https://governance.aave.com/t/direct-to-aip-lbtc-oracle-and-capo-implementation-update/22614)._