"On-chain" and "In-chain": The Interconnection of Two Financial Markets

Recently, at a blockchain industry conference, a seasoned insider gave an insightful speech on the topic of "on-chain" and "in-chain." The speech focused on comparisons between traditional financial markets and crypto financial markets, the pathways for interconnectivity between the two, and the value of distributed ledger technology (DLT).

The speaker first pointed out that the development of blockchain over the past decade is actually building a new financial market system - the crypto financial market. Unlike traditional financial markets, the crypto financial market uses distributed ledger technology, with cryptocurrencies as the unit of account. Although there are differences between the two, a trend of interconnectivity has emerged.

Interconnectivity is mainly achieved through five ways:

1. Stablecoins: It is expected that the trading volume will reach $6 trillion in 2024, serving as the main channel connecting fiat currency and cryptocurrencies.

2. ETF: To securitize on-chain digital native assets off-chain, facilitating traditional investors to allocate cryptocurrency assets. Currently, the total on-chain holdings of spot Bitcoin ETFs in the United States are close to 70 billion USD.

3. RWA( Real Asset Tokenization ): Tokenizing traditional assets on-chain through methods such as Oracle.

4. STO( Security Token Offerings ): In the next six months, there may be more cases of Web3 companies going public through direct token financing.

5. Licensed financial institutions: An important channel for the interconnection of the two markets.

The speech particularly emphasized the two asset states of "on-chain" and "in-chain". "On-chain" refers to registering real-world assets on a distributed ledger to gain global liquidity; "in-chain" refers to digital native assets like Bitcoin that inherently exist on the blockchain.

Regarding the methods of "on-chain", the speaker mentioned three types:

1. Data Onboarding: Transferring data from the Web2 world to the blockchain through Oracle.

2. Hardware devices on-chain: such as the recently popular DePIN( decentralized physical infrastructure network).

3. Asset on-chain: that is, DeFi( decentralized finance), tokenizing real-world financial assets.

Regardless of the method used, the ultimate goal of going on-chain is to achieve asset tokenization, enabling it to gain liquidity on a global scale and facilitating participation from investors around the world.

The speaker also discussed the two layers of value of DLT: first, the marginal efficiency improvement of existing mature business models, such as reducing bank settlement costs; second, as a holistic mechanism, innovating business models, such as the birth of Bitcoin.

When talking about Tokens, the speaker pointed out that they have evolved into a new class of financial assets on DLT - crypto assets. These assets are based on cryptography, blockchain, and self-managed digital wallets, possessing unique characteristics.

Finally, the speaker mentioned that with the interconnectivity of traditional finance and the crypto finance market, new compliance requirements have been raised for DLT, including KYC( Know Your Customer), AML( Anti-Money Laundering), and CFT( Counter-Terrorism Financing). Therefore, at the application level, regulation will become increasingly important.

The speech concluded with a famous quote: "What the customer wants is the hole in the wall, not the drill in hand." This means that what users really need are blockchain-based applications and new types of assets, rather than the technology itself. In the future, these new assets created based on distributed ledgers may become an indispensable part of users' asset allocation.