@Lorenzo Protocol $BANK #LorenzoProtocol
To say the most realistic but least acknowledged thing in the industry:
No stablecoin has died in a bull market, but rather in moments of black swan events.
No one saw a problem with UST when it was rising.
MIM looks like a miracle of DeFi during its expansion.
USDC also briefly lost its peg overnight due to bank risks.
FRAX has been repeatedly questioned about its sustainability due to its complex on-chain structure.
USDe's rapid growth now is accompanied by significant systemic pressure.
The biggest enemy of the stablecoin system has never been competitors.
Neither the oracle, nor the users, nor the regulators,
But rather:
Extreme market events.
During extreme volatility, the collateral system is the only foundation that cannot fail among all stablecoins.
Once the collateral cannot be valued, sold, or liquidated,
A stablecoin's 10 years of effort can collapse in one afternoon.
The biggest advantage of the Lorenzo Protocol lies here:
Its collateral system has been designed from day one to prevent black swans.
It can even be said that it has avoided all the 'classic pitfalls' that have historically led to collapses in stablecoins.
In this piece, I will clarify from the most fundamental logic:
Why is Lorenzo's collateral system more resistant to black swans than most protocols?
What structural traps has it avoided?
Why is 'stable collateral' more important than 'high yield'?
Part one: Black swans are not 'low probability events' but the default background for stablecoin operation
Many new projects do not understand this point:
In traditional finance, black swans are extremely rare events;
But in the crypto industry, black swan events are frequent.
How many have we seen:
Chain drop of 30%
Liquidation panic
Cross-chain bridge shutdown
Certain assets suddenly go to zero
Oracle delay of 2 minutes
Bilateral run on the lending protocol
LSD large fluctuations
Large protocols have vulnerabilities
These events are not extremely low probability,
But it happens every few months.
Therefore, the biggest test for the stablecoin system is not 'can it expand',
But is 'able to withstand all black swans'.
In this regard, Lorenzo's collateral thinking is clearly more mature:
Collateral must be able to be genuinely sold on the worst day.
This statement sounds simple, but it is the only lifeline for stablecoins.
Part two: If collateral assets are too flashy, they will turn into 'toxic assets' during liquidation
Many projects like to use various types of collateral:
Packaging assets
Long-tail assets
Non-priced assets
Yield-type structured assets
Cross-chain assets
Overly diversified asset portfolio
Looks good in a bull market,
During black swan events, it is a disaster.
Why?
Because during liquidation, what you need is not 'asset richness',
But rather:
Asset's valuability
Asset's sellability
Asset's liquidity
Low correlation of assets
Asset's ability to withstand on-chain volatility
If any of these items do not meet, liquidation cannot be executed.
Lorenzo's collateral system is the most 'calm' I have ever seen:
Not pursuing asset diversification
Not pursuing yield maximization
Not pursuing the construction of complex ecological endorsements
It only looks at two things -
Can it be valued?
Can quick liquidation happen in times of stress?
This is the underlying common sense that is easiest to overlook in the entire stablecoin race.
Collateral is not a selling point, but a source of risk.
Part three: Collateral must be 'de-narrativized' to survive in black swan events
There is a misconception in the industry:
"Telling a bigger narrative can strengthen the collateral assets."
But during black swan events, the market does not listen to narratives, but rather looks at whether it can be sold.
Many collateral assets appear logically coherent, yield considerable returns, and are structurally sophisticated during normal times,
But in extreme market conditions, it becomes:
Cannot be sold
Cannot be priced
No one to take over
No one is willing to take on liquidity risk
Asset correlation skyrockets
Model failure
This is why:
The LUNA collateralized by UST will go to zero in nested reflexivity
The tail assets collateralized by MIM will amplify risks in extreme market conditions
The complex asset structure of FRAX may be difficult to price in certain cycles
And Lorenzo 'de-narrativizes' the collateral:
Collateral assets must be 'real assets', not 'narrative assets'.
Must be 'sellable assets', not 'showable assets'.
This step is actually Lorenzo's biggest moat:
Others rely on narratives to support assets,
It relies on assets to support its system.
Part four: The simpler the collateral assets, the more effective the liquidation; the more effective the liquidation, the more stable the stablecoin
Whether a stablecoin can execute liquidation,
Does not depend on the motivation of liquidators,
Nor does it depend on market heat,
But depends on:
Can the collateral generate real transactions in extreme market conditions.
If the collateral cannot be genuinely traded in the market,
No matter how elegant or complex the liquidation mechanism, it is meaningless.
Lorenzo's collateral system is manifested here to the extreme:
Assets must have liquidation friendliness.
For example:
Is liquidity deep enough?
Is the liquidation discount predictable?
Is the liquidation path short?
Will there be delays due to multi-chain structures?
Can the oracle stabilize the price in a short window?
These are priorities that Lorenzo considered in the design.
It would rather sacrifice some returns than sacrifice liquidation costs.
Part five: The 'transparency' of the collateral system is the second lifeline against black swans
During black swan events, what users are most panicked about is not how much the assets drop,
But rather:
"I don't know if the collateral is stable enough."
"I don't know when liquidation will be triggered."
"I don't know if the parameters have been tampered with."
"I don't know if the system is frozen."
Panic comes from 'uncertainty'.
Therefore, stablecoins must achieve:
Transparent collateral
Parameter transparency
Liquidation logic is transparent
Redemption rules are transparent
Risk exposure is transparent
Lorenzo has done this part very cleanly:
Its collateral information, risk parameters, and liquidation conditions are all auditable and reproducible.
Transparency is not for appearances,
But to avoid chain panic during black swan events.
Part six: Why does 'collateral robustness' in turn strengthen BANK's long-term value?
Because during black swan cycles, users and institutions will shift from pursuing high returns,
Shift towards pursuing 'high survival rates'.
As long as stablecoins do not collapse in extreme market conditions,
It will be in the next cycle:
Obtain more natural demand
Achieve a higher credit premium
Attract more conservative users
Become the underlying liabilities of lending and structured assets
Attract more capital preference
All of these will flow value back to BANK.
Simply put:
The survival of stablecoins is the source of value for BANK.
And the premise for survival is robust collateral.
Part seven: My judgment - Lorenzo's collateral system is not 'conservative', but 'professional'
Many people think Lorenzo's collateral system is 'nothing special',
But those who have truly studied the history of stablecoin collapses know:
Lorenzo is the clearest in the entire industry
What can be done, what cannot be done, and what will eventually fail
The type of projects.
It has avoided:
Reflexive collateral
Cyclical collateral
Overly complex collateral
Difficult to value collateral
Long-tail asset collateral
High-risk cross-chain collateral
Rely on short-term yield collateral
It does not bet on the market, emotions, or narratives.
It only bets on one thing:
If the structure is stable, it can exist long-term.
But stablecoins that can exist long-term,
Is the currency that is truly worth building the entire ecosystem.
This is why I believe:
Lorenzo's collateral system is its strongest, most underestimated, and most long-term valuable core capability.
Not for appearances, but to survive.
In the stablecoin race, only those who can survive are the true winners.
