As an old user who has been educated about various "high-yield financial products" through several market cycles, I am very clear about where the real danger lies in CeFi investing: it has never been about the APR, but rather — who you are really trusting. The familiar names from 2022, from Celsius, BlockFi to Voyager, and later the tangled lending platforms with FTX, one after another, erupted. In the end, many people thought they were "depositors," but on the liquidation table, they were actually just unsecured creditors in the last row. This round of bloody lessons has completely torn apart the trust structure of CeFi’s "platforms guarantee, you only look at returns" for everyone to see.
If you have seriously gone through the user terms of several CeFi exchanges, you will notice that subtle discomfort: the terms often state that once regulatory or judicial authorities request an investigation, the platform can directly freeze, close, or even transfer user accounts, and the platform bears no responsibility for any resulting privacy breaches, operational failures, or asset losses. Looking further at pages like Earn or Easy Earn, the front-end copy says 'earn interest easily' and 'one-click passive income,' with APRs several times higher than traditional finance, while risk warnings are buried in the corner, glossed over in small print—platform security, market fluctuations, liquidity locks, and vulnerabilities in DeFi contracts are all your responsibility. This is typical CeFi: yields and risks are black boxes, with complexity hidden in T&C and risk control backends.
So when we talk about Lorenzo and BTCFi today, it superficially seems like 'making BTC more profitable,' but fundamentally, it is about rewriting an entire trust structure. Lorenzo itself is positioned as the liquidity financial layer of Bitcoin, connecting to native BTC staking protocols like Babylon and the new generation of BTC L2s on one end, and various yield strategies and institutional products within CeFi on the other. It uses an infrastructure called the Financial Abstraction Layer (FAL) to standardize these complex assets and strategies into composable yield modules, which are then tokenized on-chain to create freely flowing 'On-Chain Traded Funds.' It sounds very 'academic,' but the real problem it wants to solve can be summarized in one sentence: to transform yields from 'you can only trust' to 'you can verify.'
First, let's look at the bottom layer—BTC itself. What Babylon does is enable Bitcoin to participate in PoS network staking for the first time without cross-chain transfers or wrapping in wBTC, providing security to these chains while returning rewards to BTC holders. It connects BTC staking with various chains needing security through an L1 called Babylon Genesis, where Bitcoin remains on its own secure main chain, projecting the act of 'staking' through cryptographic proofs and protocol processes. This means that even if you don't trust any exchange or any new chain, you can still generate additional yields on BTC under the premise that 'What happens on Bitcoin stays on Bitcoin'—the security assumption shifts from 'trusting a platform not to do harm' to 'trusting Bitcoin and cryptography itself.'
Lorenzo stands on this layer of 'native staking' to build financial engineering on top. Users send BTC to a multi-signature vault address controlled by multiple parties on the Bitcoin mainnet through Lorenzo's front end; once confirmed on-chain, Lorenzo mints a liquid staking token stBTC for you, representing your BTC position in the underlying Vault. This vault is not just any hot wallet but is jointly held by several custodial partners from Bitcoin and traditional finance, with multi-signature addresses distributed across different hardware devices. Any on-chain movement requires multi-party collaborative signatures to take effect, and the Lorenzo protocol itself does not directly hold users' BTC private keys. Moving up, the stBTC contract, cross-chain bridges, and strategy modules have all undergone multiple rounds of audits, with reports publicly issued, even detailing 'where the centralization risk points are and how to mitigate them'—these materials, for seasoned users, are the 'answers' to check the trust structure.
Once this foundation is established, FAL can truly come into play. Previously in CeFi, when you bought a 'stable investment for 30 days,' what lay behind could be the platform itself doing lending, quant trading, market-making contracts, or even collateralizing with other platforms, with all asset paths hidden in a huge internal spreadsheet, and users could only see a line saying 'current yield rate.' In Lorenzo's design, each source of yield will be broken down into independent strategy modules: some come from native BTC staking on Babylon, some from interest rate protocols or RWA notes on a specific DeFi chain, and some from fixed-income products issued by compliant institutions. FAL packages these modules into standardized 'On-Chain Traded Funds' and specifies asset allocation, risk limits, and rebalancing rules in the contract parameters, with custodianship and auditing ensuring they execute according to the rules.
At this point, stBTC is no longer just a 'BTC shadow that generates interest,' but has derived a pair of more detailed dual tokens: LPT, representing principal rights and liquidity (which corresponds to stBTC in some designs), and YAT, representing future yield rights. By separating principal and yield, Lorenzo effectively hands back the question of 'what risks do you want to take' to users and the market. Some may prefer stable principal notes, while others may prefer to trade expectations of yield rights; these preferences can be realized through price discovery in the secondary market. Compared to CeFi's model of 'the platform decides everything, and you can only take it all,' this separation itself is a form of risk transparency.
The role of multi-signature and auditing here goes far beyond simply 'better security.' The traditional CeFi way of shutting down is often to announce one day, 'Due to market fluctuations/regulatory requirements/system upgrades, we will temporarily suspend withdrawals,' and then users see a string of forever pending withdrawal records and immobilized asset balances. Lorenzo uses a multi-signature vault on the Bitcoin mainnet, where BTC can only be moved under the condition of multi-party signatures, combined with MPC custody, time locks, and internal risk control monitoring. If an execution layer or application layer has issues, the layer where user assets reside remains observable and auditable. Moreover, external security companies conduct regular audits of contract code and bridging logic, publicly listing discovered risks and their remediation status—these are all indispensable parts of 'verifiable yields': not only the yield rate is visible, but the entire yield generation path is exposed to sunlight.
From the perspective of an ordinary BTC holder, the biggest difference in experience between CeFi finance and BTCFi is not how flashy the UI is or how simple the operations are, but how you understand those seemingly identical numbers. In the past, when I chose products, my instinctive habit was: first sorting by APR, looking at the highest first; maybe also checking 'is it principal protected' and 'is it flexible,' treating the platform name as a substitute for risk rating. Looking back now, this habit effectively handed over the power of life and death to the platform and market sentiment. After going through round after round of explosive failures, I slowly shifted my attention to other dimensions: where does this yield actually come from? Is it an exposed hedging position on the exchange's balance sheet, or is it a visible staking and lending combination on a chain? When the market crashes or the platform encounters issues, how many 'brake points' are there along this yield path to protect me? These questions have almost no answers in the CeFi framework, while in the Lorenzo + Babylon BTCFi architecture, you can at least follow the multi-signature vault address, strategy contract address, and audit report to roughly navigate this path.
Of course, this doesn't mean that BTCFi is a risk-free paradise. Native staking carries its own security risks, cross-chain and contract risks are always present, and Lorenzo cannot make everything 'absolutely decentralized.' But for someone like me, who has experienced the rollercoaster of CeFi, what truly matters is how risk is broken down, priced, and written into protocols, rather than being buried deep in some company's servers and legal notices. Babylon shifts 'who do I trust' from 'trusting a specific exchange' to 'trusting Bitcoin consensus and its cryptography.' Multi-signatures and MPC custody minimize the space for single-point malfeasance, while auditing and FAL break down yields into traceable modules—these three layers combine to form what I see as the baseline for 'verifiable yields.'
If you are currently holding some BTC and hesitating to step out of the comfort zone of CeFi, I would suggest you first do a few very specific small things, rather than going ALL IN directly. First, list the CeFi financial products you have used, carefully review their terms and past news, and ask yourself a simple question: if today the platform suddenly suspends withdrawals, how much information do I have to determine where the funds are stuck. Second, spend some time reviewing the architecture documents and audit summaries of Babylon and Lorenzo; even if just getting a rough idea, it's much better than just staring at annualized numbers. Third, with a small position that you can accept to lose, go through the complete process from depositing BTC, obtaining stBTC, to earning yields in a FAL-based strategy and exiting. During this process, deliberately observe: what data can I see at each step, who do I need to trust, and has this trust been written into the protocol or audit. Finally, based on your risk preferences, draw a new curve for future allocations: perhaps part of the BTC remains in exchange ETFs or compliant custodians, but another part should try to be entrusted to a BTCFi infrastructure that you understand.
During the era of CeFi finance, we were accustomed to treating 'trust structures' as a default background that only got questioned when something went wrong. In the new cycle of BTCFi, I hope that I and those around me can think this through in advance: what exactly am I trusting, has this trust been written into code, constrained by multi-signatures, audited by third parties, and continuously validated by on-chain data? If the answer is affirmative, then whether the interest rate is a bit higher or lower is actually not that important; what matters is that you have finally transitioned from being a 'managed depositor' to a participant who has a say in their own capital path.
