"On-chain" and "In-chain": The New Pattern of Financial Markets in the Era of Interconnectivity

At the SmartCon 2024 conference held on October 31, an industry expert delivered a keynote speech on the topic of "on-chain" versus "in-chain." The speaker delved into the similarities and differences between traditional financial markets and the crypto financial markets, as well as the increasing trend of their convergence.

Over the past decade, the development of blockchain technology has given rise to a brand new financial market system—the cryptocurrency market. Unlike traditional financial markets that use centralized accounting and fiat currency as units, the cryptocurrency market is based on distributed ledger technology and uses cryptocurrencies as accounting units. Although the two seem distinct, the trend of interconnectivity has already become apparent.

Speakers predict that by 2025, the interconnectivity of the two markets will be achieved through the following five ways:

1. Stablecoins: It is expected that the trading volume will reach $6 trillion in 2024, serving as the main channel connecting fiat currencies and cryptocurrencies.
2. ETF: Tokenizes on-chain digital assets, allowing traditional investors to allocate cryptocurrency assets without the need to manage private keys.
3. RWA (Real World Asset Tokenization): Tokenizing traditional assets on the blockchain using technologies such as oracles.
4. STO (Security Token Offering): It is expected that more Web3 companies will directly finance their listings in the form of tokens in the next six months.
5. Licensed financial institutions: An important channel connecting two financial markets.

The speaker further elaborated on the concepts of "on-chain" and "in-chain". "On-chain" refers to registering real-world assets or data on a distributed ledger to gain global liquidity; "in-chain" refers to digital native assets, such as Bitcoin, that exist on the blockchain itself.

The ways of "on-chain" are becoming increasingly diverse, mainly including three types:

1. Data on-chain: Moving data from the Web2 world to the blockchain through oracles.
2. Hardware devices on-chain: such as DePIN (Decentralized Physical Infrastructure Network).
3. Asset Tokenization: This refers to DeFi (Decentralized Finance), which tokenizes financial assets from the real world.

Regardless of the method used for blockchain integration, the ultimate goal is to achieve asset tokenization, allowing for liquidity on a global scale and facilitating participation from global investors.

The speaker also discussed the two-layer value of Distributed Ledger Technology (DLT): one is the marginal efficiency improvement of existing business models, such as increasing the efficiency of bank settlements; the other is the creation of entirely new business models and asset classes, such as Bitcoin.

In the era of interconnectedness, compliance requirements are becoming increasingly important. To this end, the speaker announced plans to launch a new blockchain based on the Ethereum Layer 2 protocol in December, aimed at providing various levels of compliance services, from KYC to AML and CFT, ensuring that users can engage in blockchain applications in a safe and compliant environment.

Finally, the speaker quoted a famous saying: "What customers want is the hole in the wall, not the drill in hand." He emphasized that blockchain technology is just a tool; what truly matters are the new types of assets and applications created based on this technology, which will become an indispensable part of users' asset allocation.