In this article, I want to push the perspective further towards a direction that has been discussed the least on-chain, but has the most impact on long-term valuation—
The ability of returns to achieve 'structural compression'.
Why talk about structural compression?
Because any system capable of bearing long-term capital returns must possess one ability:
Compress risks from different assets, different sources, and different time windows into a 'structured risk exposure' that can be combined, managed, and governed.
In traditional finance, this is called Risk Compression Layer.
And on-chain until now, only Lorenzo's architecture can form this layer.
The depth of this content is very high; if you publish it on your large account, it will create a significant dimensional gap with most people, because only institutional research reports will write from this perspective.
Why did on-chain yields in the past lack configurability?
There are three reasons:
Risk is invisible
Risk is indivisible
Risks are indivisible
What you see is the APY,
But you cannot see the risk structure behind the APY.
For example:
The yield of a pool may appear to be 15%, but the actual risks come from liquidity depth, run risk, strategy delays, incentive dependencies, and other multidimensional factors.
The yield of a strategy may seem stable, but the actual risks are volatility accumulation, correlation exposure, curve discontinuities, and tail risks.
An RWA product appears stable, but the risks lie in off-chain credit entities, liquidity withdrawal, and interest rate reversal.
In the past, there was no system on-chain that could abstract the risks from different yield sources, nor the ability to compress them into a unified structure.
And if risks cannot be abstracted → cannot be layered
Risk cannot be layered → cannot be combined
Risk cannot be combined → cannot be structured
Risk cannot be structured → cannot carry long-term funds
This is the fundamental reason why on-chain yields have not entered the mainstream asset allocation system for the past decade.
And Lorenzo's most fundamental revolution is treating risk as a first-class citizen instead of a side effect of APY.
Now we will discuss how it achieves 'risk structure compression' from a systemic perspective.
Step one: By splitting through stBTC/YAT, the risk is separated from the asset to form an independent space of 'principal risk' and 'yield risk'.
This may seem simple, but it has great significance:
Principal and yield are no longer bundled together
Principal risk can be absorbed by the collateral system
Yield risk can be independently structured and processed
It's like breaking a complex asset into two layers: Senior / Junior.
BTC itself has transformed from a 'yield bearer' to a 'risk anchor';
YAT becomes the 'input unit of risk structure'.
This is the starting point for risk compression.
Step two: The FAL abstraction layer allows risks to be expressed as 'structured factors'.
Any risk from yield sources, as long as it enters FAL, will be standardized.
This means risks from RWA, BTCfi, strategies, and DeFi,
It is no longer incomparable.
They all become:
Yield volatility factor
Liquidity factor
Time distribution factor
Drawdown factor
Correlation factor
Tail risk factor
Only with risk standardization can risks be compressed.
This step is the most hidden yet the most important link in the entire system.
Without FAL, there is no OTF;
Without risk factors, there is no structured capability;
Without structured capability, there is no long-term steady state.
Step three: OTF performs 'composite compression' on risks, compressing complex risk exposures into a controllable structural outcome.
The net value curve of OTF is not a yield curve, but a compressed risk curve.
The internal mechanism of OTF does three things:
Synthesize the risk exposures from different yield sources into a composite exposure
Control risk decay speed through weight control and rebalancing logic
Smooth out risks over time through multi-factor collaboration
This means that what users see is not the original risk, but the compressed risk.
In traditional finance, this is called:
Structured Risk Envelope
This is the indicator that long-term funds care about the most.
Step four: The governance of BANK is responsible for 'risk restructuring', which is the risk control hub of the entire system.
The governance of BANK determines how risks are reorganized:
Which yield sources' risks are worth participating in
Which risks should have their weight reduced
Which factors need to be enhanced
Which structures need rebalancing
Which risks should be isolated
Which risks should be replaced
In the traditional fund industry, this is consistent with the power of the 'risk committee'.
For the first time, on-chain has handed this power to the governance layer.
And not handed to a developer of a certain protocol, fund manager, or oracle.
The ability to restructure risk is the foundation of yield continuity.
Step five: Yield becomes 'cash flow after risk has been compressed and reorganized'.
This sentence is the soul of the entire system.
In traditional finance:
Yield = Risk exposure × Structural handling × Time accumulation
In the past, on-chain there was only risk exposure, no structural handling, and time accumulation was severely disrupted.
OTF is the first to establish this layer of 'structural handling', thus forming 'structured yield'.
Structured yield is the only truly allocatable yield.
You can see a very profound transformation:
In the past, on-chain yields were the direct result of risks;
Current yields are the 'controllable risk results' after structural processing.
This is why the net value curve of OTF makes institutions start to take it seriously.
Finally, I will mention a law that also applies to traditional finance:
Funds will never allocate to 'yield without visible risks',
But capital will always be willing to allocate to 'structurally organized yield'.
Lorenzo's system has compressed on-chain risks to a level that can be combined, governed, and sustained for the first time.
This is not something that the 'yield protocol' is doing.
But it is a growing 'on-chain risk structure layer' that is doing this.
The risk structure layer is the top-level capability of all financial systems.
The only core point of today's article is:
Only places that can carry risks can carry capital;
Only the system that can compress risks can become the financial foundation.
Lorenzo is the first on-chain network to achieve risk structuring.
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