I want to try to raise my perspective a bit higher and discuss the role of the Lorenzo Protocol in the macroeconomics of Bitcoin from the perspective of monetary banking.
We all know that Bitcoin is often compared to 'digital gold' or 'central bank base money (M0)'. Its status is supreme, with no counterparty risk, serving as the stabilizing force in the entire crypto world. But have you ever wondered why in the real world we can't just rely on gold or the paper money issued by central banks to get by? Because base money is 'dead'; to achieve economic prosperity, we must rely on the commercial banking system to create a more active broad money (M2) through credit expansion.
What the current Bitcoin ecosystem lacks the most is the layer of commercial banks that can create a 'multiplier effect' for the currency. In my view, Lorenzo Protocol is precisely filling this enormous vacuum.
Please imagine Lorenzo as the first 'decentralized commercial bank' in the Bitcoin world.
When you deposit BTC into Lorenzo, it's not just a simple staking action; it is economically equivalent to depositing a 'base reserve' into a commercial bank. In return, Lorenzo issues you a 'bank note' called stBTC. This note is valuable because it is backed by 100% Bitcoin as a rigid repayment reserve, while it also adds the risk-free security yield brought by Babylon.
This process has actually completed a thrilling leap of Bitcoin from 'reserve asset' to 'circulating currency'.
Why is it called a thrilling leap? Because before Lorenzo appeared, if you wanted to utilize the value of Bitcoin, you typically had to sell it or engage in extremely inefficient OTC lending. In this model, the velocity of money circulation is very slow. However, the emergence of stBTC means that the credit of Bitcoin has been standardized. With stBTC, you can provide liquidity on DEX, leverage on lending protocols, and hedge in the derivatives market.
The essence of all this is that Lorenzo has unlocked Bitcoin's 'credit expansion cycle'.
It's like in the modern financial system, every unit of base currency, through the circulation of the banking system, can support ten units of economic activity. Lorenzo is the accelerator that allows Bitcoin to generate a 'currency multiplier'. Through it, the $1 trillion 'dead money' originally sitting in cold wallets has been activated to support $5 trillion or even $10 trillion of DeFi economic activities.
Moreover, what Lorenzo, this 'bank', does even better than traditional banks is that it has separated the core function of interest creation.
Traditional banks give you interest in a black box operation, and you don't know what bad things they are doing with your money. But in Lorenzo, the interest represented by YAT is completely transparent, traceable on-chain, and settled instantly. This is equivalent to turning the core logic of the interest rate spread of commercial banks into a public market that everyone can participate in.
For the entire industry, the significance of this 'currency stratification' is strategic.
Babylon solved the technical problem of 'can Bitcoin be used as secure collateral', which is equivalent to establishing the underlying settlement system of a 'central bank'; Lorenzo solves the financial problem of 'how to make these collateral certificates circulate efficiently in the market', which is akin to establishing the payment and credit network of a 'commercial bank'.
Without roles like Lorenzo, even if there are many Bitcoin Layer 2 solutions, they would just be a group of small villages without even an ATM, and the economic scale would never grow large. Only when an efficient 'commercial banking system' is established, allowing funds to circulate, derive, and settle between various ecosystems with extremely low friction costs, can the Bitcoin ecosystem truly grow into a complex financial forest like Wall Street.
So, when we hold $BANK , we are betting not just on the success or failure of a protocol but on the belief that Bitcoin will eventually evolve into an independent, complete, and highly developed monetary financial system. In this system, Lorenzo holds the key to unlocking the door to credit.
