Bitcoin's limited programmability and transaction throughput have historically prevented native Bitcoin from participating in decentralized finance (DeFi) applications. Existing solutions depend on honest-majority thresholds, or centralized custodial entities that introduce significant trust requirements. This paper introduces Bitcoin Smart Accounts (BSA), a novel protocol that enables native Bitcoin to access DeFi through trust-minimized infrastructure while maintaining self-custody of funds. BSA achieves this through a combination of emulated Bitcoin covenants using Partially Signed Bitcoin Transactions (PSBTs) and Taproot scripts, a Trusted Execution Environment (TEE)-based arbitration system, and destination chain smart contracts that enable DeFi platforms to accept self-custodial Bitcoin as collateral without necessitating protocol-level modifications. The setup leverages liquidity secured by the Lombard Security Consortium which provides a twofold advantage: for a DeFi protocol, liquidators rely on fungible assets with deep liquidity to quickly exit positions, while for a depositor, the general trust assumptions of honest majority (m-of-n) are reduced to existential honesty (1-of-k). We present the complete protocol design, including the Bitcoin architecture, the TEE-based arbitration mechanism, and the Smart Account Registry for protocol management. We provide a security analysis that demonstrates the correctness, safety, and availability properties under our trust model. Our design enables native Bitcoin to serve as collateral in lending markets and other DeFi protocols without requiring users to relinquish custody of funds.

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