One thing that is becoming increasingly clear is that on-chain returns are undergoing a paradigm shift that is largely overlooked by most users, yet it will fundamentally change the future flow of funds. In the past decade, returns belonged to the asset layer, as an additional condition of assets; in the next decade, returns will become part of the system layer, integral to on-chain infrastructure. This difference may sound abstract, but at its core, it represents a financial watershed—asset properties are random and uncontrollable, whereas system properties are modeled, governable, and scalable.
The Lorenzo Protocol is indeed one of the first protocols to implement the concept of 'systematizing returns.' Its innovation is not about whether a product is good or not, but rather how it is rewriting the existence of returns. In financial terms, it transforms returns from a 'commodity' into a 'mechanism,' from 'interest rates' into 'structures,' and from 'opportunities' into 'capabilities.'
To understand why Lorenzo's system possesses irreversible power, one must first understand what 'system properties' mean.
On-chain yields were previously unpredictable, non-combinable, and non-splittable; they were bound to assets, pools, and incentive cycles. Their essence belongs to 'low-tier yields,' changing like the weather, lacking modeling capability. Therefore, funding behavior could only follow events: high APY stimuli lead to inflows, incentive declines lead to exits, strategic errors lead to explosions, and market fluctuations lead to chain reactions. The entire yield space is passive.
However, once yields enter the system layer, their core characteristics change to three points: abstractable, combinable, and governable.
Composability means that yields no longer depend on a particular pool but can be managed as independent resources; combinability means that yields can be reorganized in a structured manner rather than through single-point exposure; governability means that the sources, paths, and risk exposures of yields can be adjusted internally within the system rather than left to chance. The combination of these three capabilities constitutes the 'skeleton of the asset management system' built over decades in traditional finance.
Lorenzo's system is gradually moving this matter onto the chain.
The most basic step is to start from yield splitting. stBTC and YAT not only allow assets to be more flexible but also establish an independent risk space at the yield layer. In traditional finance, splitting cash flows is a prerequisite for all structured products, as only by splitting can there be a possibility of combination, pricing, and governance. BTC, for the first time on-chain, possesses 'cash flow splittability,' transforming it from a single-factor asset into an engineering asset.
However, splitting only addresses the observability problem of yields; what truly allows yields to enter the system layer is the FAL abstraction layer. The role of FAL is not to 'let yields in,' but to 'enable yields to possess combinability.' Different yield sources are abstracted into a unified structure, akin to standardizing data across different industries so that a single model can be used for analysis. FAL not only enables yield combinations but also establishes a unified risk model, standardized exposure methods, and a unified pricing path. For the first time, yields can be called, compared, replaced, and layered like modules. Only at this level do yields possess the embryonic form of 'system properties.'
When yields possess combinability, OTF can become the 'yield system scheduler' on-chain. OTF is not a product, but a set of 'execution environments for yield systems.' It can transform abstract yields into dynamic curves that reflect the long-term behavior of models. What on-chain users have seen in the past was merely static APY, but what capital sees are curves, for curves embody structural stability. In traditional asset management, curves are the primary evaluation dimension of asset categories, and Lorenzo has made this dimension a capability at the user and on-chain level for the first time.
More crucially, OTF allows yields to enter a state of 'automatic execution at the system layer.' Users do not need to choose pools, adjust positions, or manage risks; everything is handled by the system according to the model. This is very similar to traditional passive investment systems: users only see results, while the system takes care of the structure. On-chain yields find it difficult to become systemic capabilities, as the on-chain infrastructure lacks a complete abstraction layer, a combination layer, and a governance layer. Lorenzo has fully complemented these three layers, thus for the first time, yields possess systemic characteristics.
And the most important element of the system is governance.
The governance of BANK is not about adjusting parameters, but managing the system properties themselves. It determines whether yield sources are allowed to enter the abstraction layer, sets risk ceilings for combination strategies, determines the proportions of different types of cash flows, decides whether the model should expand in direction, and manages how yields are routed between users and the treasury. These governance decisions determine how the yield system operates, similar to 'systemic decisions' in traditional asset management that influence long-term structural performance. Its influence no longer stays at the product level but controls the entire system skeleton.
When yields become system properties, capital behavior will undergo five significant changes:
First, capital no longer chases short-term APY, but rather seeks reliable structures;
Second, yields no longer depend on market events, but on structured models;
Third, products are no longer competitive points, but applications at the system layer;
Fourth, governance is no longer symbolic, but the true control center of the yield model;
Fifth, TVL no longer relies on activities but on the stability of curves for sedimentation.
This is precisely the stage that traditional finance has experienced over decades of evolution, now appearing on-chain for the first time.
Lorenzo's breakthrough is not because its current yields are high, but because it grants on-chain yields 'sustainability' and 'configurability.' Once system properties are formed, they will not be easily replaced, as the structure itself embodies a network effect: the more standardized the abstraction layer, the more powerful the combination layer, the more important the governance layer, the more stable the yield system.
On-chain yields will become increasingly complex in the future: multi-chain yields, AI data yields, RWA bond yields, futures funding fee yields, and cross-chain MEV yields. These cannot be managed through pool models. Only when yields enter the system layer can such complexity be accommodated.
And Lorenzo is building the first version of this system.
