@Lorenzo Protocol #LorenzoProtocol $BANK
In the world of encryption, risk is often spoken of as some sort of monster. Whenever the market crashes, protocols explode, or black swan events occur on the chain, people say, 'The risks of DeFi are too great; I can't handle it.' However, if you take traditional finance a little seriously, you will discover a fact: risk is not the problem; the lack of organization of risk is the problem. The greatest ability of traditional finance has never been to 'reduce risk,' but rather to 'organize risk.' They break down, layer, hedge, match, and recombine risks, making risk a controllable system rather than an unpredictable monster. Returns do not fall from the sky; they are the natural result of well-organized risks. The problem with DeFi is that the vast majority of protocols do not have risk organization mechanisms and instead throw all risks 'in one go at the users.'
What was past DeFi like? It was like throwing users into a furnace, letting them predict the temperature, deciding when to jump out, and judging when to stand up without getting burned. Users do not understand strategies, do not understand volatility, do not understand structures, so all risks are directly exposed to users, making everyone a flustered risk bearer. Today they do liquidity mining, tomorrow they go to market neutrality, and the day after they engage in compound strategies. You can see users running back and forth between strategies, but the real problem is not that users are not smart enough, but that the system fundamentally lacks the ability to organize risks.
Risk has not been absorbed, has not been layered, has not been structured; it has been directly thrown into the hands of users.
When there is no organizational ability for risk, returns can never stabilize. You might occasionally catch a market opportunity, occasionally get APY, but you cannot build a sustainable financial system. Any model that requires users to operate themselves, judge for themselves, and adjust positions by themselves will never reach a large-scale audience. Because what truly determines the vitality of financial products is not the yield, but the structure. The structure determines how risks are borne, determines where returns come from, and determines how strategies coordinate under different market performances. Without structure, there is no stability; without stability, there is no future.
Lorenzo's significance lies here: it is the first time that risk has become structure. The design of OTF is not a strategy combination, but risk structuring. It separates different types of risks—trend risk, volatility risk, neutral risk, cash flow risk, execution risk, asset risk—and allocates them to corresponding strategy layers, then combines all strategy layers into an overall structure. In this structure, risk no longer flows directly to users, but is absorbed by the structure, diversified by strategies, and balanced by combinations. This is a brand new way of risk engineering, allowing users not to bear all complexities, but for the structure to bear the complexities for them.
When risk is absorbed by structure, returns become understandable. In the past, you did not know where a pool's returns came from, did not know what would happen in the next phase, did not know when to withdraw. But the structured approach of OTF makes returns possess 'traceable sources'. Returns are not a one-time explosion, but the result of the synergistic effects of different levels within the structure. When trend strategies encounter volatile markets, volatility strategies will fill in; when volatility strategies are inactive, cash flow strategies become the foundation; when market trends reappear, the combination automatically adjusts risk exposure. The stronger the ability to organize risk, the smoother, more stable, and more real the returns become. Returns no longer depend on narratives, incentives, or luck, but come from the behavior of the structure itself.
Truly mature financial products do not promise high returns, but rather promise that the structure can operate normally. The longer the structure operates, the easier it is for users to build long-term confidence. Lorenzo's structure possesses this 'vitality'. It is not a static pool, but a dynamically operating risk system. Its strategies are not isolated, but complementary. Its organizational method is not manual judgment, but systematic mechanisms. Risk within it is not an enemy, but a tamed resource. Just like water flow in a hydraulic system is not a destructive force, but transformed into electricity after being organized by channels.
The previous DeFi approach of 'throwing risk to users' is an unscalable model. Lorenzo's method of 'organizing risk and then providing it to users' is a scalable financial infrastructure.
This is the fundamental difference between 'risk products' and 'structured products'.
Risk products let users bear the risk; structured products let the structure bear the risk.
Risk products rely on emotions; structured products rely on engineering.
This is also why I have always believed: Lorenzo does not look like a DeFi project, but rather a 'chain-based risk organization system'. What it does is not strategy, but construction; not returns, but absorption; not APY, but order. It transforms risk from chaos into structure, turns returns from randomness into rules, and changes assets from tools into products. This is a new phase and a new path.
Only when risk is organized will the market mature.
Only when the structure takes on the risk for people will users truly participate.
And when this structure is standardized, modularized, and composable, the entire on-chain finance can be considered to have truly begun.
What Lorenzo is doing is all of this.