Lorenzo's current TVL has already surpassed 1 billion dollars. EnzoBTC is close to 400 million, stBTC has over 27 million, and sUSD1+ has over 83 million. Combined, it's quite a substantial scale. But do you know what Lorenzo's protocol fee income has been in the past 30 days? 0 dollars. That's right, zero.
A DeFi protocol managing 1 billion dollars in assets actually charges no fees at all. This is unimaginable in traditional finance, where BlackRock charges a management fee of 0.5% on assets managed. If Lorenzo charged 0.5% on 1 billion, it would mean an annual income of 5 million dollars, but they chose not to charge.
What is the logic behind this? Is it that the Lorenzo team has too much dumb money, or are they playing a bigger game?
Let's talk about where Lorenzo might charge fees. The first is deposit and withdrawal fees. Users deposit BTC to mint enzoBTC or redeem enzoBTC for BTC. This process can charge a fee of 0.1% to 0.3%. Many DeFi protocols do this.
The second is management fees. Structured products like USD1+ OTF have an investment committee behind them for active management and can charge an annual management fee of 0.5% to 1%. This is standard in traditional finance, and users can accept it.
The third is performance commission. If the yield of USD1+ exceeds a certain benchmark, such as 10%, the excess can be charged a commission of 20% to 30%. This kind of incentive mechanism is very common in hedge funds. Users are only charged when they make money, a win-win situation.
But Lorenzo is currently not charging anything. DeFiLlama shows that the protocol fees over the past 30 days are 0. This either indicates that Lorenzo is currently in a user growth phase, temporarily not charging to attract users, or it indicates that their charging method is very hidden and has not been accounted for by data platforms.
If it's the former, then Lorenzo's strategy is to first scale up and then consider profitability. This approach is very common in the internet age. Early on, Didi and Uber were both crazy about subsidies, not making money and even losing money. But once market share is established, prices can be raised to harvest.
Lorenzo's TVL has just reached 1 billion. In the entire DeFi market, it is still not considered large. If they start charging now, it may affect user growth. Once the TVL reaches 10 billion or even higher, charging a fee of 0.3% would still yield $30 million in revenue in a year. It wouldn't be too late to profit then.
But this strategy has a problem, which is the speed of burning money. Lorenzo's team has to pay salaries, right? Auditing costs money, right? Custody fees have to be paid, right? Marketing needs a budget, right? All of these are real cash expenses. If there is no income, how to maintain it?
Lorenzo's funding is only $200,000, which is simply not enough to burn. Therefore, they must have other sources of income. The most likely is the appreciation of tokens. After the BANK token goes live, if the price rises, the tokens in the team's hands will become valuable, and they can sell part of it to maintain operations.
But this method is not sustainable because token prices are volatile. If the price rises, they can sell; but what if it falls? Moreover, if the team frequently sells tokens, the market will feel they are cashing out, which is not good for token prices. So this is not a long-term plan.
The second possibility is that Lorenzo's charging method is relatively hidden. For example, they may charge fees in the underlying strategy of USD1+ OTF. Users see the overall yield, but in fact, the protocol has already taken a cut in the middle, only this cut is not reflected on-chain, so DeFiLlama cannot account for it.
For example, the three-layer yield of USD1+ RWA layer yield 5%, CeFi quantitative layer yield 15%, DeFi layer yield 25%. After weighted averaging, it may be 12%. Lorenzo may take a performance commission of 1% to 2% from each layer, but this commission is deducted directly from the yield, not charged separately.
In this way, what users see is a net yield of 10%, which seems pretty good. But in fact, Lorenzo has already taken a 2% commission. Over a year, this is also a considerable income. It's just that this charging method is transparent to users; they cannot perceive it.
But if Lorenzo really charges this way, then transparency becomes an issue because the core value of DeFi is transparency. All fees should be traceable on-chain, and users have the right to know how much of their money has been charged and where those fees have gone.
According to Lorenzo's official information, they have not disclosed a specific fee structure, only stating that there will be some management fees and performance commissions. But the specifics of how much, how to charge, and when to charge have not been clearly stated. This is indeed an information gap.
However, it is also possible that Lorenzo is currently really charging 0 fees because they are making money in other ways, such as through MEV (Maximum Extractable Value). Lorenzo manages $1 billion in assets and reallocates between various DeFi protocols, capturing some MEV opportunities.
For example, if Lorenzo finds that the borrowing rate of Aave suddenly skyrockets, they can quickly move the USD1+ funds over to take advantage of high yields before the rates drop. This operation itself can generate additional income. Although it’s not directly charged, it is also a way of making profit.
Another possibility is that Lorenzo is engaged in liquidity mining. They deploy users' funds to various protocols to obtain token rewards from these protocols. These rewards may not be fully distributed to users, but rather the protocol keeps a portion, which is also a form of disguised income.
But regardless of which method Lorenzo uses, the phenomenon of 1 billion TVL and 0 fees is indeed abnormal, because the cost of operating a DeFi protocol is very high. Without a continuous cash flow, it is difficult to maintain in the long term, unless they have other profit models or are in the process of fundraising.
From the perspective of competitors, WBTC charges a minting fee of 0.25%. Babylon, although not directly charging, takes a cut from staking yields. Solv Protocol also has management fees. If Lorenzo really charges 0 fees, then they indeed have a price advantage in the competition, but it also raises concerns about sustainability.
My personal judgment is that Lorenzo may currently be in the market education stage. They know that most BTC holders are still very unfamiliar with DeFi. If they charge right from the start, users may be reluctant to try. So they attract users for free first, and once users are accustomed, they gradually introduce a charging mechanism.
This strategy makes sense in business, but the risk is that if the money-burning period is too long, the team can't hold on, or investors are unwilling to continue investing, the project may fail. Therefore, Lorenzo needs to find a balance between user growth and profitability.
Lorenzo's zero-fee strategy may help with rapid growth in the short term, but in the long term, they must establish a sustainable profit model. Otherwise, this business cannot continue. 1 billion TVL is just a number. Whether it can be converted into real cash income is the key @Lorenzo Protocol $BANK
