Debrief: sUSD1+ OTF’s Outperformance Against Record-Breaking Liquidations

Sparked by U.S. President Donald Trump’s surprise announcement of 100% tariffs on China, on October 10/11 (depending on your time zone), $19.5 billion in leveraged positions were liquidated within 24 hours, marking the largest forced crypto liquidation event ever. Leveraged long positions, thin liquidity in altcoins, and cascading automated liquidations created a feedback loop that drove prices lower. Bitcoin plunged from above $125,000 to below $113,000, while Ethereum, XRP, and Solana each suffered double-digit losses. When the dust settled, the damage was several multiples larger than the 2022 FTX collapse and COVID market crash combined.

In these situations, safety vs. liquidation is more complicated than being directionally correct. Microstructures fail at multiple points: liquidity is instantly drained, congestion/cancellation fails, oracles and internal risk control thresholds are rapidly redrawn, and the availability of borrowing and funding fees reverse at the minute level.

At Lorenzo Protocol, a large part of our focus is on handling these complexities, providing our users with real-yield products that are resistant to market volatility. In our functions as an on-chain investment bank, we create these products via tokenization, support in their fundraising during issuance, and design & execute DeFi yield strategies to improve their effectiveness. And this year, the product that has received most of our focus has been sUSD1+ OTF, the first-ever yield product for USD1 holdings, and our first On-Chain Traded Fund (OTF). Since its testnet launch in July, the product has attracted over $80 million in TVL across nearly 30,000 depositors, with weekly APY typically ranging between 7–12%.

With weeks of steady returns under its belt in normal market conditions, the market flash crash was the first true test of the sUSD1+ OTF design’s resiliency, and it performed as intended. While other basis-trading projects that were delta-neutral on paper failed in execution (with some getting liquidated during the crash), sUSD1+ OTF turned volatility into cash flow for depositors, keeping returns stable even in the extreme market environment.

The principal side was effectively protected, and the basis trading of the neutral strategy was not impacted. These factors resulted in sUSD1+ OTF generating a 1.1% daily yield. As users of other products panicked, sUSD1+ OTF depositors closed out the week with a ~50% 7-day APY.

The price difference/capital fee in the abnormal range has been deposited into the product’s NAV, the number of sUSD1 + OTFs held by users remains unchanged, and the net value will increase with the fund’s income.

Our advantage starts with our people. Core members of Team Lorenzo leverage quantitative backgrounds (Jump Trading/Two Sigma) to engineer our products. They’ve built sUSD1+ OTF to, instead of being a game of market directional shifts, earn from a combination of market-making dividend, basis/capital fee, and term structure management, all blended into an OTF product that can be uniformly scheduled. As such, our performance was not the result of being directly correct. It was one of properly-engineered systems (systems that protect principal in extreme environments and produce steady APY in normal environments) realizing volatility and turning it into measurable cash flow for our users.

With this stress test serving as a proving point moving forward, sUSD1+ OTF now provides a practical blueprint from which we can scale the OTF model into a yield strategy factory, which could produce new products covering mainchain assets, stablecoins, RWAs, and various combinations in the future. As a collection, these new products will construct a diverse, reusable on-chain income asset matrix that helps us realize our on-chain investment bank vision.

The lesson from the flash crash is very clear: in extreme moments of microstructure and multi-point failure, book neutrality does not equal execution safety. We remain focused on building reliable, real-yield systems that help users navigate every market cycle.

Start earning from just $20 → https://app.lorenzo-protocol.xyz/otf/vault?vaultId=0x4F2760B32720F013E900DC92F65480137391199b&chainId=56