Liquid Custody Tokens (LCTs): An Overview

What Are Liquid Custody Tokens (LCTs)?

Liquid Custody Tokens (LCTs) are a novel class of crypto assets that represent assets held in regulated or centralized custody, but with a critical innovation: these tokens maintain the liquidity benefits commonly associated with liquid staking tokens. In other words, users deposit assets (such as BTC, ETH, USD, or stablecoins) into a custodial provider, and in return, receive a blockchain-native voucher token (the LCT) which is pegged 1:1 to the deposited asset and can be freely traded, used as collateral, or engaged in DeFi applications1 2 3.

Key Features

Custodial Backing: Assets are held with a regulated custodian or platform—often with major financial institutions (e.g., Fidelity) backing the custody layer4 5.
Tokenization: Depositors receive LCTs representing direct claims on their custodied assets (e.g., BBTC for Bitcoin, BBUSD for USD stablecoins on BounceBit).
Liquidity: LCTs can be transferred, used in secondary markets, or deployed throughout DeFi.
1:1 Peg & Redemption: Holders can redeem their LCTs with the issuing platform/custodian for the underlying asset at any time2.
DeFi Composability: LCTs unlock new yield and trading opportunities while benefiting from regulator-grade custody.

Example Implementations

BounceBit's Liquid Custody Tokens

Mechanism: On BounceBit, users deposit assets (BTC, ETH, USD, etc.) and receive LCTs (BBTC, BBETH, BBUSD) pegged 1:1 to their deposits. These tokens can be staked, yield-farmed, or used elsewhere in the ecosystem, and are always redeemable for the underlying custodied asset1 3.
Use Cases: Enables PoS staking with Bitcoin, stablecoin liquidity for trading and yield, while always retaining a clear redemption path1 2 3.

MyStonks: Custody-Backed Stock Tokens

Platform: MyStonks.org issues fully custody-backed, on-chain stock tokens by partnering with Fidelity, which holds over $50M in U.S. stocks. Users receive tokenized versions of equities that are transparently and securely backed by real assets4 5.

LCTs vs. Liquid Staking Tokens (LSTs)

Feature	Liquid Custody Token (LCT)	Liquid Staking Token (LST)
Underlying Asset	Custodied (not staked)	Staked (PoS blockchains)
Issuer	Centralized/Regulated	Decentralized Protocol
Redeemability	1:1 for custody asset	1:1 (or near) for staked asset
DeFi Integration	Yes	Yes
Collateral Risk	Custodial/Centralized	Protocol/Validator, Smart contract
Example	BBTC, BBUSD (BounceBit)	stETH (Lido), LsETH (Liquid Collective)1 6 7 8+2

Risk and Regulation

Custodial Risk: Reliant on the custodian's operational security and compliance.
Regulatory Oversight: LCTs are often designed to adhere to strict custody and regulatory standards (see MyStonks with Fidelity, BounceBit’s regulated custody model)1 4 11.
Transparency: Robust redemption, auditing, and reporting mechanisms are central to maintaining trust in LCT projects4 11.

Evolving Ecosystem and Outlook

Growth: LCTs bridge the gap between TradFi custody and DeFi utility, bringing new types of assets and users on-chain.
Integration Trends: As regulatory clarity emerges, more platforms (e.g., Cashlink in Germany) are piloting regulated, custody-backed token models11.
Composability: LCTs can be stacked, used as collateral, or combined with other DeFi and tokenization solutions for greater capital efficiency1 4 12.

Platform	Custodian/Backing	Asset Types	LCT Examples	Notable Utilities
BounceBit	Regulated Custodians	BTC, ETH, USD, USDT	BBTC, BBETH, BBUSD	Staking, DeFi, Redemption
MyStonks	Fidelity	U.S. Equities	Tokenized AAPL, etc.	Stock trading, collateralization
Cashlink	BaFin-licensed (DE)	Securities, Crypto	Tokenized Bonds	European DeFi, compliance

Conclusion

Liquid Custody Tokens represent a new step in the evolution of on-chain assets—combining real asset backing, regulatory-grade custody, and blockchain liquidity for end users. As institutional and regulatory momentum increases, LCTs are set to play an important role in bringing securely custodied, real-world assets into the DeFi economy1 4 11.

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