@Lorenzo Protocol $BANK #LorenzoProtocol
Individual risks can be avoided,
but systemic risk can only be prepared for structurally in advance.
This is the truth that all central banks, clearing institutions, and risk control teams in traditional finance are most aware of—
The monetary system never dies at the moment assets deteriorate, but rather at:
The moment the entire system has a problem.
In other words:
The most dangerous thing about stablecoins is not the "individual collateral crashing,"
but the entire market suddenly enters a state where "all assets are correlated, all liquidity is withdrawn, and all arbitrageurs leave the market."
In the crypto industry, such systemic risks are not rare events,
But appears periodically:
2020 3·12
2022 Luna algorithmic stablecoin chain collapse
2022 FTX triggered on-chain liquidity exhaustion
2023 banking risks caused USDC to briefly depeg
Every time a systemic event occurs,
The vast majority of stablecoins are exposed to the same problems:
Collateral correlation surges
Liquidation speed cannot keep up
Arbitrageurs are afraid to enter the market
Yield models fail instantly
Risk exposure cannot be valued
Oracle delays are magnified
All these issues are not about whether 'assets are good',
But structural fragility.
And Lorenzo's design has treated 'systemic risk exposure' as the number one enemy since Day 1,
Its entire architecture revolves around one logic:
Even if the whole market is collapsing,
This system must also be able to run.
In this article, I will break down how Lorenzo avoids the fatal chain of systemic risk across four dimensions:
Collateral structure
Liquidation structure
Yield structure
Parameter structure
No fancy tricks, all are true financial logic.
Part One: The biggest killer of systemic risk is 'asset correlation' rather than the decline itself.
Many projects think:
'If the collateral is strong enough, it can prevent risk.'
But systemic risk is not just the decline of collateral,
But all assets drop together, have no liquidity together, and cannot be priced together.
This is the root cause of stablecoin death.
You can collateralize BTC, but when the entire market volatility spikes to 80%,
BTC's liquidity discount will also enter the 'black swan zone'.
You can collateralize ETH, but when on-chain liquidation pressure erupts simultaneously,
ETH will become 'risk assets', not 'liquid assets'.
You can even collateralize US Treasuries, but when cross-chain liquidity runs dry in the crypto world,
The settlement cycle of US Treasuries will also become a source of risk.
What is Lorenzo's collateral logic?
Not the 'strongest asset'.
Not the 'highest yield asset'.
But:
Assets that can still be quickly valued and disposed of under systemic risk.
What it pursues is not asset fluctuations, but:
Low correlation
High valuability
High disposability
This is the gold standard in systemic risk.
Part Two: The most terrifying thing under systemic risk is not 'losing money', but 'liquidation cannot be executed'
What is the on-chain environment during systemic risk?
Oracle delays are significant
Gas surging
Liquidation robots squeeze
Deep collapse
Selling pressure concentrated
Collateral correlation surges
Arbitrage space disappears
Almost all risk control models will have calculation errors at this moment.
However, liquidation cannot wait,
The model cannot stall,
The system cannot 'pause'.
Most stablecoins die here:
'Liquidation cannot be executed'.
And Lorenzo's liquidation mechanism is the most clearly designed for extreme market conditions in the entire industry:
Short liquidation path
Discount rules are fixed
Parameters will not jump
Liquidation incentives are large enough
Model behavior is predictable
No complex tiered structure
In other words,
It is not designed for 'normal markets',
But is designed for 'the worst day'.
That's why the greater the systemic risk, the more stable it is.
Part Three: When systemic risk erupts, complex yield models are more dangerous than collateral.
Another overlooked aspect of systemic risk is:
Yield models will fail instantly.
Typical case:
Shorting yields disappear
Interest rate arbitrage fails
Stable yield sources are exhausted
Capital outflows lead to APY mismatches
Structured assets cannot be valued
At this time, all stablecoins supported by complex yields will encounter:
Severe reflexivity on the liability side
Asset-side yields lag behind risks
Protocol income instantly becomes zero
Liquidation pressure falls entirely on the collateral assets.
This will lead the system into a death spiral.
And Lorenzo's yield structure is almost designed against systemic risk:
Yield sources do not rely on market conditions
Does not rely on leverage
Does not rely on interest rate spreads
Does not rely on arbitrage
Does not rely on emotions
Not relying on secondary market price fluctuations
Yield comes from two parts:
Collateral yield (base yield)
Protocol fees (usage drivers)
Both of these parts are 'anti-fragile yields',
Will not go to zero in systemic risk.
Part Four: The real core of systemic risk is 'parameter jumps'—and Lorenzo has no such issues.
Many stablecoins die in a crisis not because of market volatility,
But because:
Parameters suddenly adjust
Liquidation thresholds suddenly change
Discount suddenly increases
Risk models suddenly update
Collateral requirements suddenly increase
Users will panic directly because of these 'jumps'.
Panic causes stomping, stomping causes liquidation pressure, liquidation pressure causes a death spiral.
This is essentially triggered by the system reflexivity of 'non-transparent models + parameter jumps'.
And Lorenzo's parameter system is:
No jumps
No temporary modifications
Does not rely on complex dynamic functions
Does not adjust for market emotions
Doesn't change due to user growth
It lets participants know in advance:
When will the system liquidate?
What discount will liquidation occur at?
How is collateral pressure transmitted?
Which parts will be triggered?
The stronger the predictability, the weaker the reflexivity.
The weaker the reflexivity, the harder systemic risk is to kill the system.
Part Five: Why Lorenzo is the stablecoin of the 'systemic risk era'?
Writing to this point, the logic is already very clear:
Stablecoins that can withstand systemic risk need four capabilities:
Collateral can still be priced in extreme market conditions
Liquidation mechanisms do not fail due to congestion
Yield structure will not suddenly go to zero
Parameters will not jump
And Lorenzo just hits all four points.
Other stablecoins often only meet one or two points,
That's why they are hit hard in every black swan event.
And in the era of systemic risk, the real competition is not:
Who has high TVL?
Who has a strong narrative?
Who expands quickly?
But:
Who will survive?
Who can be adopted by institutions?
Who can be the underlying of structured assets?
Who can withstand the next crisis?
Lorenzo's structure is designed to 'survive'.
Part Six: My judgment—Lorenzo is the type of stablecoin that is 'least likely to be killed by systemic risk'
Not because it is the most conservative,
Not because it is the smartest,
But because it understands best:
The real enemy of stablecoins has never been competitors, but systemic risk.
Its structure is a detailed breakdown of systemic risk:
Low correlation of collateral
Liquidation mechanism is executable
Sustainable yield structure
Parameter structure is predictable
This is not 'crypto project logic',
This is 'financial infrastructure logic'.
The future winner of the stablecoin track is not the one with the highest TVL,
But is the one that lasts the longest.
But Lorenzo,
Is born to 'last long'.
