How Lorenzo Protocol Manages Risk in On-Chain Traded Funds (OTFs)
A clear breakdown of how Lorenzo Protocol applies transparency, vault isolation, and traditional finance principles to manage risk in DeFi structured products.
Risk management is a core design feature of Lorenzo Protocol’s On-Chain Traded Funds (OTFs). Unlike opaque traditional funds, OTFs operate entirely on-chain, where strategies, capital flows, and rules are enforced by smart contracts.
Lorenzo uses a modular vault architecture, separating strategies into isolated simple vaults and diversified composed vaults. This structure helps contain risk and prevents a single strategy failure from impacting the entire fund.
Diversification plays a key role, as composed vaults allocate capital across multiple yield sources rather than relying on one return stream. All activity is fully transparent, allowing users to verify positions and allocations in real time.
Security is further supported by external audits, continuous monitoring, and BANK token governance, which lets the community participate in risk-related decisions.
The result is a DeFi-native approach that borrows discipline from traditional finance while preserving on-chain transparency.
Action tip: Always review vault composition and on-chain data before allocating capital.
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Educational insight for Binance Square readers
Disclaimer: Not Financial Advice
