If we say that the previous round of DeFi relied on 'discovering yields', then the next round that will truly attract institutions and long-term capital is 'designing yields'. The market has consistently misunderstood Lorenzo's value, seeing it as a combination of 'BTC LRT + stablecoin enhancement', but this understanding doesn't even touch its core architecture. It is not inventing a type of yield product, but rather transforming on-chain yields from 'uncontrollable natural phenomena' into a 'modelable financial system'. This may sound abstract, but it will determine whether the on-chain yield system can enter a phase of specialization in the coming years.
The biggest problem with on-chain yields in the past was not volatility, but unpredictability. Whether the pool can sustain, whether the strategy will expose risks, when incentives will decline, whether the underlying assets will shift, whether interest rate cycles will change—these factors are all 'post-event occurrences.' Users can only passively accept, and protocols can only passively observe. The on-chain yield model has long been in an 'event-driven' mode, lacking the capability of 'structure-driven.' The Lorenzo system for the first time provides a structure that can make yields into 'modelable objects,' which is a primary capability of all asset management systems in traditional finance.
To understand Lorenzo's foresight, one must start with the splitting of stBTC and YAT. BTC was originally a single-factor asset, and its returns could only come from external overlay behaviors, such as liquid staking, lending, derivatives, etc. BTC itself cannot split cash flows, nor can it split risk exposures. The splitting of Lorenzo allows BTC to gain a dual-path structure similar to 'underlying asset + yield stream,' which means that the risk of returns can be independently exposed, principal volatility can be isolated, and yield curves can be handled separately. This capability is used in traditional finance to construct layered bonds, structured notes, and priceable cash flow models, serving as a foundational capability in the asset management industry.
The true value after splitting is thoroughly amplified in the FAL abstract layer. The sources of on-chain returns were previously fragmented, with each return having its own contract model, risk control logic, liquidity curve, and risk factors, making it difficult to conduct a combined analysis within a single framework. The essence of FAL is to abstract returns into a unified format of return units, and then use a unified calculation model to evaluate, price, and attribute them. This allows returns to possess 'parameterization' for the first time. Each source of return can be assigned weights, risk factors, drawdown limits, and volatility ranges, rather than being determined by the pool's 'how much to count as how much.' This abstraction capability allows on-chain returns to enter a 'composable state,' and the combination itself is the core underlying logic of asset management.
Only after the abstract layer was established could OTF present Lorenzo's true form. OTF is not a stablecoin product, but rather a 'on-chain net value curve generator.' It structurally combines the underlying returns: RWA interest rates are used to provide stable cash flow support, quantitative strategies enhance returns, DeFi yields provide diversification factors, and BTCfi's returns provide periodic beta. This mixed return structure is not configured based on experience, but is adjusted based on model parameters. The net value curve of OTF reflects not short-term market opportunities, but the stability of the portfolio model. When users receive net value instead of static APY, the yield system finally gains the credibility of professional asset management. Long-term capital, treasury assets, and institutional liquidity will not enter because of high APY, but will allocate assets due to a stable net value curve.
The emergence of OTF has transformed returns from 'something users need to seek' into 'the capability automatically executed by the protocol.' As long as the frontend integrates OTF, users depositing BTC or stablecoins can automatically enter the structured yield system. This means that returns have shifted from 'active behavior' to 'default experience,' from 'individual choice' to 'frontend capability.' For the first time, on-chain returns begin to exhibit 'universality' rather than 'elitism.' When returns become a foundational capability, any application—wallets, payment systems, cross-chain bridges, treasury management tools, RWA platforms—can natively integrate yields. This symbolizes the industrialization of returns: returns are transitioning from products to infrastructure.
The most important capability in the banking system is 'risk management authority,' which is embodied in the BANK within the Lorenzo system. The governance authority of BANK is not the traditional DeFi type of 'voting to adjust parameters,' but rather 'voting to adjust structures.' It can decide whether a certain source of yield can enter FAL, whether the risk factor of a certain strategy needs to be adjusted, whether OTF should change the underlying asset distribution, and whether the mixing ratio of different sources of yield needs to be rebalanced, and whether the yield path is allocated to users or kept for the treasury. In other words, BANK manages the 'model layer' of the entire yield system. This is not liquidity mining governance nor symbolic on-chain management, but is closer to the 'investment committee' of traditional asset management companies. Whoever controls the yield model controls the direction of funds on-chain.
In such a system, Lorenzo's competitors are no longer those protocols imitating BTCfi or stablecoin yields, but rather the potential leaders in the future trend of yield abstraction. On-chain yields will certainly become increasingly complex: RWA interest rates will continue to evolve, BTCfi will generate more sources of yield with the expansion of L2, AI data yields will enter the mainstream, and quantitative strategies will continue to iterate. The pool can no longer cope with this complexity, and fragmented protocols cannot combine cross-asset yields. Yields will undoubtedly be abstracted, modeled, and industrialized, and Lorenzo is currently the closest complete structure.
From this perspective, its goal is not to become the leader in a certain track, but to become the default standard of the 'on-chain yield model layer.' If this layer becomes a factual standard, then all yield products will need to be represented on FAL, all composite products will need to rely on OTF to be built, and all governance actions must be decided through BANK to determine structural direction. At that time, Lorenzo will no longer be a 'protocol,' but will become 'yield infrastructure.' On-chain TVL, cross-chain capital, institutional assets, treasury management, and the underlying yields of stablecoins will naturally converge towards this structure.
In summary: On-chain yields were descriptive in the past, while Lorenzo makes yields engineering; past yields were random, and now yields begin to be controllable; past on-chain finance used 'opportunity models,' while Lorenzo promotes the shift of on-chain to 'structure models.' This is not the success of a certain product, but a paradigm shift of the entire yield system.
