In today's article, I want to discuss a slightly deeper topic about 'certainty.'
In this circle, we are used to fluctuations. Bitcoin rises by 5% today and falls by 10% tomorrow, and everyone finds it quite normal; DeFi mining yields 20% today and drop to 2% tomorrow, and people are also accustomed to it. But have you ever thought about why those traditional large institutions, holding hundreds of billions of dollars, are hesitant to enter the market on a large scale? Aside from compliance issues, the biggest obstacle is actually that they can't make 'financial predictions.'
For a publicly traded company or a pension fund, compared to 'possibly earning 50%', they prefer 'certainly earning 5%.'
This is the most attractive, yet undervalued point of the Lorenzo Protocol in my eyes: it is attempting to introduce the concept of fixed income to the volatile Bitcoin world.
How is this achieved? It goes back to its genius design of “principal and interest separation.”
Let’s look at YAT (yield tokens) from a different angle. Previously, we said it could be sold for early cashing out. But from the perspective of financial engineering, when you sell YAT, which represents future uncertain yields, at a certain price today, you have actually completed a magical transformation: you have turned “floating rates” into “fixed rates.”
For example: Suppose you stake 1 BTC, and the market expects the annualized yield to fluctuate between 5% and 10%. As a conservative investor, you do not want to bet on this fluctuation. Therefore, on Lorenzo’s market, you directly sell the YAT of this 1 BTC for the next year to a speculator willing to seek high returns, in exchange for 0.06 BTC in cash.
At this moment, regardless of how the true yield of Babylon may change in the future, you have locked in a 6% risk-free return. Your Bitcoin has turned into a tangible “interest-bearing bond.”
Does this sound a bit like government bonds or corporate bonds in traditional finance? That's right, Lorenzo has actually replicated a huge bond market on the Bitcoin chain.
This is of nuclear significance to the Bitcoin ecosystem.
First, it provides a perfect habitat for those risk-averse whales. They do not need to study complex DeFi strategies or worry about sudden drops in yield; they only need to lock in returns through Lorenzo’s mechanism to achieve a stable cash flow similar to holding U.S. Treasury bonds. This is the ultimate killer move to attract TradFi (traditional finance) funds into the market.
Secondly, for the aggressive players on the other end, Lorenzo provides a leveraged casino to seek yields. If you judge that the Bitcoin ecosystem will explode in the future, gas fees will soar, and node yields will double, you can acquire YAT in large quantities at a low price on the market. This is essentially betting on the prosperity of the Bitcoin ecosystem.
So, in my eyes, Lorenzo is not simply a “coin interest” DApp. It is an Interest Rate Market.
In a mature financial system, the scale of the bond market is often several times or even more than a dozen times that of the stock market. Why? Because interest rates are the cornerstone of financial asset pricing. What Lorenzo is doing now is defining the “benchmark interest rate” for Bitcoin. When the trading volume of stBTC and YAT is large enough, the market will automatically discover what the cost of capital for Bitcoin is and what the risk-free rate of return is.
This is how the “financial layer” should look. It is not just about making your coins move; it is about making your coins “predictable, planned, and structured.”
In the future, when we see people building “principal-protected wealth management products,” “yield swap agreements,” or even “Bitcoin fixed deposits” based on Lorenzo, please do not be surprised. Because from the moment Lorenzo separated principal and interest, Bitcoin was no longer just digital gold; it has acquired the foundational brick and stone capability to build the modern financial edifice.
In this world full of uncertainties, selling “certainty” is often the best business.
