The Reason Why DeFi Is at a New Stage.
Speed has always characterized DeFi in most of its history. Capital flows rapidly, incentives shift rapidly and users are conditioned to respond. This model was successful in cases where the ecosystem was man made and small. However, the scope of this strategy is starting to be seen as constrained as DeFi matures. Unstructured fast money is a source of instability. Surrendering without plan produces weakness. More liquidity is not what DeFi requires, but how to structure it in a more appropriate manner.
It is in this that Lorenzo Protocol comes in with a completely different attitude. Lorenzo is not made to gain instant fame. It aims to address a long-term issue which most protocols silently act as though does not exist, how capital is expected to behave on-chain over time.
Products to Financial Architecture
The majority of the DeFi protocols are products. They provide one service and they are in fierce battle to win deposits. Lorenzo is nearer to infrastructure. Rather than leaving the task of managing positions manually with the users across several platforms, it offers a framework within which strategies are coded directly into the system.
On-Chain Traded Funds, also known as OTFs, are located at the heart of this framework. These are tokenized versions of trading and investment strategies as opposed to straightforward asset baskets. Users with an OTF in their possession are not risking a token story. They are committing to an agreed code of regulations that governs the process of capital deployment, rebalancing, and management.
It is this aspect that is at variance with Lorenzo because it is not the asset-centric thinking but rather the strategy-centric thinking. It is an abstract form of complexity, not a concealed one.
Vaults That Encode Behavior
The two forms of vaults are used by Lorenzo to organize capital. Single-strategy vaults are concerned with one strategy. They are clear, transparent and understandable regarding their risk profile. Users are fully aware of the type of market exposure that they are making.
At another level there are vaulted squares. They are the pathways of capital through various simple vaults according to predetermined allocation logic. It can be diversified and dynamically rebalanced without having to be constantly maintained by the user. Practically, composed vaults are automated portfolio managers that act on-chain completely.
What comes out of it is a capital that is rule-driven rather than emotionally-driven. It is a very important move towards scalability of DeFi.
The importance of this to DAOs and Treasuries
DAO treasury management is one of the best applications of Lorenzo. Most of the DAOs have access to huge capital, yet they can not use the funds in a responsible manner. Decisions made manually are slow, political and usually not taken at all.
Lorenzo offers a way out. DAOs are able to set strategy requirements and allow vault logic to run. Capital may be conserved through the application of conservative strategies. Smaller portions can be allocated to growth strategies. Everything is transparent and auditable.
This converts treasuries into dormant reserves to organized balance sheets and does not centralize control.
BANK Token and Long-Term Governance
The BANK token is used in the main alignment of incentives. With the veBANK system, the governance authority is associated with the long-term commitment as opposed to the short-term speculation. This makes sure that people who are concerned about the future of Lorenzo make decisions over strategies, vault parameters and protocol evolution.
BANK does not aim at generating excitement as many more governance tokens do. It is structured to make responsibility. Such a differentiation is unobtrusive, yet significant.
Institutional Logic The Absence of Institutional Friction.
Institutions are also looking at on-chain finance but they need structure, predictability, and transparency. Lorenzo speaks the language of theirs without bringing the olden day inefficiencies. OTFs are similar to the common fund forms, and vaults are executed without taking custody risk.
This makes Lorenzo a natural testbed of institutions that want to test on-chain strategies without the cost of foregoing their risk structures.
Why Lorenzo Feels Different
Lorenzo is not promoted as a company with excessive yields and incentives. Its appeal is quieter. It is appealing to those users who reason in allocation, discipline, and time frames, and not short-term benefits.
This is the reason why it can be underestimated nowadays. However, when DeFi matures and capital is more wary the systems which focus on structure, rather than hype, will prevail.
A Protocol designed around the Future.
Lorenzo Protocol is a change of thinking of DeFi in regard to capital. It does not consider asset management as a peripheral issue. It translates strategy into architecture, governance into incentives.
New protocols such as Lorenzo can characterize the next stage of DeFi as it passes through the sustainability phase. They are necessary because they are not loud, but because they must be.
The issue is no longer whether DeFi can transfer money at a rapid pace. The issue of concern is can it cope well with money. Lorenzo is making a bet that the future is upon those who will design towards that reality.
