"On-chain" and "In-chain": Transformations and Opportunities in the New Financial Market

At a recent blockchain industry conference, a well-known figure in the field delivered an excellent speech on the topic of "on-chain" and "in-chain". The content of the speech covered the comparison between traditional financial markets and crypto financial markets, the trend of interoperability between the two, and the important role of Distributed Ledger Technology (DLT) in asset management and financial innovation.

The Integration of Traditional Finance and Cryptocurrency Finance

Over the past decade, the development of blockchain technology has given rise to a brand new cryptocurrency financial market system. Unlike traditional financial markets that use fiat currency as the accounting unit, the cryptocurrency financial market adopts a distributed accounting method, using cryptocurrencies as the accounting unit. These two seemingly independent market systems are gradually showing a trend of interconnectedness.

Five Major Ways of Interconnectivity

1. Stablecoin: It is expected that the transaction volume will reach $6 trillion in 2024, serving as the main channel for the connection between fiat currency and cryptocurrency.

2. ETF (Exchange-Traded Fund): To securitize on-chain digital assets off-chain, facilitating traditional investors' participation in cryptocurrency investments.

3. RWA (Real World Asset Tokenization): Increasing the liquidity of traditional assets by bringing them on-chain and tokenizing them.

4. STO (Security Token Offering): Provides new financing and listing channels for Web3 enterprises.

5. Licensed financial institutions: An important bridge connecting two financial markets.

Distinction Between the Concepts of "On-chain" and "In-chain"

Assets exist in two states: on-chain and in-chain. On-chain refers to registering the data of real-world assets on a DLT to gain global liquidity. In-chain refers to digital native assets, such as Bitcoin, which exist on the blockchain itself.

Three Ways to "Go on Chain"

1. Data on-chain: Moving data from the Web2 world to the blockchain through oracles.

2. Hardware devices on chain: Achieved through DePIN (Decentralized Physical Infrastructure Network).

3. Asset Tokenization: This refers to DeFi (Decentralized Finance), which tokenizes real-world financial assets.

The ultimate goal of these on-chain methods is to achieve asset tokenization, enabling them to gain liquidity on a global scale.

The Dual Value of DLT

DLT can not only be used to improve the marginal benefits of existing business models, such as reducing interbank clearing costs, but more importantly, it can serve as a completely new mechanism to foster innovative business models and new asset classes.

Token: New Type of Cryptocurrency Asset

In DLT systems, tokens are not only a form of usage permission or data unit but have evolved into a new class of financial assets—cryptographic assets. These assets are based on cryptography, blockchain, and self-managed digital wallets, providing users with asset autonomy.

DLT Development Under Compliance Requirements

With the interconnection between traditional finance and the cryptocurrency market, compliance requirements for DLT are also increasing. Future DLT systems will need to meet regulatory requirements such as KYC (Know Your Customer), AML (Anti-Money Laundering), and CFT (Counter Financing of Terrorism). This means that while maintaining a decentralized infrastructure, the application layer needs to adapt to specific scenarios and regulatory demands.

Conclusion

As a famous saying goes: "What the customer wants is a hole in the wall, not the electric drill in hand." DLT and blockchain technology are merely tools; what truly matters are the new applications and assets created based on these technologies, which will become an indispensable part of users' asset allocation.