When DeFi users waver between "high-risk speculation" and "low-yield mining", and institutional-level quantitative strategies remain an unreachable "black box" for ordinary investors, a project called Lorenzo Protocol is attempting to create a gap in the Bitcoin ecosystem with the concept of "on-chain trading funds" (OTF) — making complex financial strategies tradable like spot trading and turning institutional-level risk management into a public good accessible to everyone. This is not just a simple yield aggregator, but a technical experiment that completely reconstructs traditional asset management logic on-chain.
It all starts with a core insight: the complexity of DeFi should not be an obstacle for user participation. The Financial Abstraction Layer (FAL) of Lorenzo Protocol acts like a highly modular back-end operating system, encapsulating complex operations such as capital allocation, strategy execution, risk management, and yield distribution into standardized interfaces. After users deposit BTC or stablecoins, they do not need to understand the gamma risks of covered calls, nor need to know the rebalancing logic of delta-neutral hedging; they just need to hold tokens representing their shares, and the underlying yields will accumulate automatically. This design merges the depth of off-chain strategies with the transparency of on-chain settlements: funds are publicly raised on the mainnet, strategies are executed by a regulated team in CEX accounts, yields are distributed on-chain after settlement by custodial partners, and smart contracts automatically update net values. The brilliance of the closed loop lies in its ability to circumvent the shackles of DeFi's liquidity shortages while avoiding the traps of CeFi's opacity.
The core innovation of the technical architecture lies in the extreme release of BTC liquidity. Through Babylon's native staking mechanism, Lorenzo achieves "separation of principal and interest"—staked BTC generates stBTC representing the principal, whose liquidity can continue to be reused in DeFi; YAT yield accumulation tokens represent future rights to earnings, which can be traded independently. This design creates the first non-resettable yield token in cryptocurrency, sUSD1+, whose value grows continuously with the underlying strategy returns, rather than through the issuance-based rebase method. When users purchase sUSD1+ for 1 USD1, if the strategy achieves a 5% annualized return, the redemption value after one year becomes 1.05 USD1, with the process requiring no manual claiming or reinvestment. This value accumulation mechanism not only simplifies operations but also makes sUSD1+ a quality collateral, unlocking the potential for yield stacking across protocols.
Performance data validate the effectiveness of its strategies. The USD1+ OTF achieved an annualized yield of 25.78% during the backtesting period from 2021 to 2025 for delta-neutral basis trading, with a maximum drawdown of only -0.48% and a Sharpe ratio as high as 8.09. This means that under the premise of assuming extremely low market risk, it generated returns that surpassed most DeFi strategies. The testnet before the mainnet launch attracted 17,600 participants who deposited 165 million USD stablecoins, confirming the market's strong demand for "one-click institutional-level strategies." Collaborating with OpenEden to introduce USDO tokenized government bonds has pressed a low-risk cornerstone into the strategy portfolio, making the overall yield curve smoother.
The design of the economic model continues this institutional-level thinking. The total supply of BANK tokens is fixed at 2.1 billion, with an initial circulation of 425 million, accounting for 20.25% of the total. In the distribution structure, 25% is used for incentive rewards (of which 8% is airdropped within 3 months post-IDO), 25% is allocated to early investors, 15% belongs to the core team (with cliff periods and linear unlocks), 13% is invested in ecological construction, and 5% is reserved for the treasury. This structure injects 38% of the tokens directly into the community and ecosystem, far exceeding the shares of the team and investors, reflecting a commitment to decentralized governance. Although the detailed release schedule of tokens has not been fully disclosed, the lock-up mechanisms for the core team and investors ensure that interests are deeply tied to the long-term success of the protocol.
The design of the value capture mechanism shows cleverness. Protocol revenues are used to buy back and destroy BANK from the open market, creating ongoing deflationary pressure; stakers receive dividends in USDT; staking BANK earns veBANK, which not only enhances governance weight but also unlocks higher yields and fee discounts. The veBANK mechanism tilts voting rights toward long-term lock-up holders, filtering out the most loyal community members to guide the protocol's direction. This "governance rights + economic incentives + privileged access" trinity design creates a powerful token flywheel: the more successful the protocol, the more buybacks occur, the higher staking yields become, the stronger the token's appeal, and the more prosperous the ecosystem. The backing from Binance's incubation and investment from YZi Labs provides top-tier resources for liquidity support and ecosystem expansion.
The construction of the regulatory framework demonstrates rare pragmatism and foresight. Users in Singapore can purchase BANK on MAS-compliant exchanges and participate in staking and OTF investment after completing the KYC/AML process. Although DeFi protocols themselves are decentralized, intermediary entities serving Singapore users must comply with the Payment Services Act. Lorenzo's response is to collaborate with licensed platforms like Securitize to ensure the compliant tokenization of RWA assets; obtaining an AA Skynet rating through CertiK audits to meet institutional security requirements; and HT Digital providing weekly reserve proofs to achieve transparency in regulation. This "on-chain native, off-chain compliant" hybrid architecture allows it to operate legally in friendly jurisdictions like Singapore while reserving interfaces for potential regulatory changes in markets like the US and Europe.
The social dimension's impact is reflected in the substantive promotion of financial democratization. The traditional asset management industry locks complex strategies behind million-dollar thresholds, while Lorenzo packages them into splitable, tradable, and combinable on-chain tokens. Among the 17,600 testnet participants, many are ordinary users encountering delta-neutral strategies for the first time. When they pay with sUSD1+ through AEON Pay in Telegram, the earnings from institutional-level strategies have quietly transformed into the capacity for everyday consumption. This shift is not only technical but also social—it redefines who is qualified to participate in advanced financial games.
The risk matrix is also clearly visible. Although the smart contract risks have been audited by CertiK, 100% safety cannot be guaranteed; market fluctuations may cause CeFi strategies to fail, especially during "black swan" events; the SPT queue redemption mechanism may extend withdrawal times under market pressure; the uncertainty of global regulatory policies always looms. While the voting custodial mechanism can filter long-term holders, it may also lead to an excessive concentration of governance power; the 8% rapid airdrop may attract users but also brings short-term selling pressure risks.
In the future landscape, Lorenzo plans to expand the OTF engine into a standardized SPV system, allowing enterprises to conveniently issue tokenized bonds as collateral; launching institutional-level USD1+ investment funds for family offices; integrating stBTC and sUSD1+ into more DeFi protocols, forming a cross-chain composable ecosystem. These arrangements point to a greater ambition: to become a liquidity hub connecting the Bitcoin mainnet with the multi-chain DeFi world, allowing BTC to serve as the cornerstone of the entire crypto economy while earning staking rewards.
As the DeFi industry is torn between "decentralized fundamentalism" and "institutional compliance," Lorenzo Protocol chooses a middle path—using on-chain transparency to constrain off-chain execution capabilities, automating with smart contracts to lower institutional strategy thresholds, and balancing short-term speculation with long-term building through fixed token supply and ve governance. It is neither a typical DeFi Lego nor traditional CeFi asset management, but a new species of CeDeFi that attempts to fuse the advantages of both. Whether this fusion can withstand the test of extreme markets depends on whether its FAL abstraction layer can continuously support new strategies, whether veBANK governance can resist short-term manipulation, and whether RWA integration can achieve scale expansion within a compliant framework.
The real challenge lies in whether, as the crypto market enters the next bear market cycle, when Babylon's staking rewards are no longer the main character of the story, and when the regulatory scythe truly falls, Lorenzo can still maintain its narrative of 25.78% annualized returns. But at least for now, it offers a third path worth exploring for DeFi users trapped in the "high risk-low return" paradox—allowing institutional-level strategies to work for them without having to become quantitative experts.
I am a boat carving the sword, an analyst who focuses only on essence and does not chase noise.@Lorenzo Protocol #LorenzoProtocol $BANK
