From 'Agreement' to 'System' Cognitive Leap
The market tends to classify the Lorenzo Protocol as a 'BTC Yield Protocol' or 'DeFi Aggregator'. This perception underestimates its blueprint. Its token name $BANK is not coincidental; it straightforwardly reveals the project's ultimate ambition: to become a composite of 'Central Bank' and 'Commercial Bank' within the on-chain native financial system, and in the process, compete for the rights of currency issuance and credit creation in the future on-chain world. This article aims to elaborate on this core viewpoint.
Part One: The Essence of Traditional Banking and the Absence of DeFi
To understand Lorenzo, we must first deconstruct traditional banks:
1. Credit intermediaries and currency creation: The core function of banks is not 'vaults', but to create credit currency by absorbing deposits (liabilities) and issuing loans (assets). Under the reserve requirement system, 1 unit of base currency can derive several times the broad money.
2. Term and risk conversion: Convert short-term deposits into long-term loans and assume default risk.
3. Asset management and wealth custody: Manage assets for clients and provide value-added services.
In contrast to the current mainstream DeFi: It perfectly addresses 'payment settlement' (such as DEX) and 'peer-to-peer lending', but mostly remains in a collateral lending model, requiring over-collateralization to generate credit (like DAI). Essentially, this is an 'asset pawn shop' rather than a 'credit bank', unable to create real credit expansion. The on-chain world lacks a core hub that can efficiently create currency based on future income streams and asset credit.
Part Two: How does Lorenzo play the role of an 'on-chain bank'?
Lorenzo's three core components correspond exactly to the three main functions of banks:
1. Liability side (absorbing 'deposits'): LBTC and income vaults.
· Users deposit BTC in exchange for LBTC or directly deposit LBTC into income vaults, which is equivalent to depositing gold (BTC) into the banking system in exchange for a 'certificate of deposit' (LBTC/LPT/YAT). Lorenzo thus aggregates a large amount of on-chain native assets with income demand, forming his own 'liability base'. This is no different from how banks absorb savings.
2. Asset side (creating 'assets'/issuing 'loans'): strategy vaults and OTF.
· The bank channels deposits into loans and securities. Lorenzo, on the other hand, channels the gathered LBTC into various income-generating assets (CeFi government bonds, DeFi lending, ecological Staking) through strategy vaults. These strategy vaults represent income-generating assets with different risk-return characteristics that he has autonomously created.
· More importantly, it standardizes and tokenizes these income-generating assets into OTF (on-chain trading funds) or YAT. These tokens themselves are new financial assets that can be freely traded in its liquidity layer. This is no longer a simple asset aggregation, but a complex on-chain asset creation (Asset Creation) based on original deposits.
3. Currency and credit creation layer: Financialization of LPT and YAT.
· This is the prototype of its 'central bank' function. The separation and tradability of LPT (anchored principal) and YAT (representing future income streams) is revolutionary.
· LPT as 'over-collateralized stablecoin': Since 1 LPT is always pegged to 1 LBTC (backed by 1 BTC), it can serve as extremely high-quality collateral in other DeFi protocols. Lending based on LPT may allow for a higher collateral ratio because it is backed by the hardest asset in Bitcoin.
· YAT as 'income currency': YAT represents predictable future cash flows. In more advanced financial protocols in the future, YAT itself can be directly used as a means of payment or discounted based on its future income streams, issuing bonds. This is equivalent to monetizing 'future income' in advance, a form of credit creation based on income expectations.
· The liquidity layer as the 'interbank market': Lorenzo provides deep liquidity for these self-created assets (LPT, YAT, OTF). This market serves as the on-chain 'interbank trading market', responsible for the pricing, trading, and circulation of these new financial assets.
Part Three: $BANK - the 'central bank equity' in the system.
In this self-consistent on-chain banking system, the role of $BANK is that of the 'equity' and 'policy tool' of the central bank.
· Capital and ultimate payers: The stakers of veBANK are the final bearers of systemic risk and also enjoy the right to claim ultimate residual value (protocol profit buyback and dividends), consistent with the role of bank shareholders.
· Monetary policy implementer: veBANK holders vote to decide which 'assets' ($BANK) the incentive flows will be directed towards (vaults/liquidity pools). This directly guides the direction of 'credit' (liquidity) creation within the system, akin to open market operations (OMO), affecting the interest rate levels and asset prices across the entire ecosystem.
· System governors: Decide key parameters (fees, listed assets) and play a role in financial regulation.
Conclusion: A silent revolution regarding financial sovereignty.
Therefore, the competitive dimension of the Lorenzo Protocol is no longer simply about 'yield competition'. It is attempting to construct an independent on-chain financial system that uses Bitcoin as the ultimate reserve asset, with $BANK as the governance core, capable of autonomously creating and circulating complex income-generating assets. What it competes for is the right to define, issue, and price the liquidity of 'high-quality income-generating assets' in the future multi-chain world.
If successful, the value of $BANK will far exceed the scope of 'governance token + dividends'. It will represent ownership rights to this emerging on-chain central bank-commercial bank complex. The road ahead is long and filled with regulatory and technical uncertainties, but this is undoubtedly one of the boldest and most ambitious attempts in the process of DeFi transitioning from 'LEGO combinations' to 'system building'.
@Lorenzo Protocol #LorenzoProtocol $BANK
