Author: Max.s
For a long time, many natives of the crypto world have been intoxicated by a grand narrative: Web3 will launch a revolution against Web2. As long as we move Nasdaq stocks onto the blockchain and replace the NYSE's matching engine with smart contracts, we will ultimately reshape global finance with RWA (Real World Assets).
Looking at the constantly fluctuating candlestick charts on the screen, we need to remember this date: November 10, 2023. On this day, due to strong market expectations for the approval of the first cryptocurrency spot ETF, institutional funds made significant moves through compliant channels, leading to a surge in CME's open interest, surpassing Binance.
CME data for that day: Open interest reached approximately 111,100 BTC, with a nominal value of about $4.08 billion (accounting for about 24.7% of the total open interest in the network at that time).
Binance data: Open interest was approximately 103,800 BTC, with a nominal value of about $3.8 billion.
We must acknowledge a harsh reality: this will be a one-sided devouring!
Take a look at the diagram below.
In the diagram, Process 1 represents the expansion of traditional finance (TradFi) into the crypto space, such as the launch of futures on CME and BlackRock's introduction of ETFs; Process 2 represents the penetration of crypto finance into traditional assets, such as the tokenization of U.S. stocks and RWA.
The current market provides a clear answer: Process 1 is advancing rapidly, while Process 2 is struggling. The core of this difference lies not in technology, but in the liquidity constraints caused by "compliance costs."
Why can Wall Street giants easily penetrate the crypto sphere, while we find it difficult to invade their strongholds?
The concept of marginal cost in economics can explain everything.
For CME, CBOE (Chicago Board Options Exchange), EUREX (European Futures Exchange), or SGX (Singapore Exchange), the marginal cost of listing Bitcoin derivatives is almost zero.
These financial behemoths possess clearing licenses that have been operational for decades, extremely mature risk control models, and dedicated networks connecting to the world's top hedge funds. For them, Bitcoin is just another ticker symbol following gold, crude oil, and soybeans. They do not need to rewrite the underlying code, hire new compliance teams, or even re-educate clients. They only need to submit a filing to the CFTC (Commodity Futures Trading Commission), adjust a few parameters, and a new, compliant market capable of handling hundreds of billions in liquidity is born.
In contrast, for Process 2, when crypto exchanges attempt to "tokenize U.S. stocks," they face an insurmountable chasm.
Do you remember the equity tokens that FTX once took pride in? They were not only one of the triggers for its downfall but also the original sin in the eyes of regulators. If a crypto-native platform wants to allow users to purchase Tesla stocks with USDT in a compliant manner, it needs to obtain a securities broker license, a clearing license, resolve conflicts in securities laws across jurisdictions, and navigate extremely complex KYC/AML processes. The compliance costs involved are not linear but exponential.
For crypto-native enterprises, this is a war that has already ended before it even began. Traditional finance is not only compliant; they are the rule-makers.
Why are compliance costs so important? Because compliance directly determines safety, and safety determines the entry threshold for capital.
Retail investors in the crypto market often misunderstand the source of "liquidity." True liquidity does not come from the few thousand USDT held by retail investors but from pension funds, endowment funds, sovereign wealth funds, and large market makers.
These giants face extremely strict fiduciary duties. This explains why the approval of the Bitcoin spot ETF in 2024 will be a historic turning point.
Before the ETF, a traditional family office wanting to allocate Bitcoin had to go through an extremely complex approval process: Who manages the private keys? What happens if the exchange collapses? How is auditing done? The ETF and CME futures perfectly solve this problem: no need to manage private keys, no need to trust offshore exchanges, everything is completed within a U.S. stock account.
CME's Bitcoin futures open interest continues to hit new highs, and behind this is not retail investors battling it out, but Wall Street institutions engaging in basis arbitrage and risk hedging. Top high-frequency traders like Jump Trading and Jane Street have lower latency in CME's server rooms than on AWS.
As CBOE plans to re-enter the crypto derivatives market and SGX and EUREX begin to establish compliant derivatives channels in Asia and Europe, we see a clear trend: the pricing power of crypto assets is shifting from offshore, unregulated exchanges (like early BitMEX and some current offshore CEXs) to regulated traditional financial exchanges.
Just as crude oil futures do not require the owner to physically transport crude oil, the future of crypto finance does not require investors to actually use decentralized wallets.
In this process, cryptocurrencies themselves are stripped of their "currency" payment attributes, removed from the ideology of "anti-censorship," and refined into a purely high-volatility financial asset. They are encapsulated in ETFs, packaged into futures contracts, and stuffed into traditional asset allocation portfolios like 60/40.
The conclusion seems predetermined: Web3 finance (especially the secondary market trading part) is likely to be integrated into Web2 finance, becoming a trading category of traditional finance.
This may sound unpleasant to crypto purists, but it is precisely a sign of asset maturity.
The future landscape may look like this: the underlying blockchain technology (Web3) will still be responsible for asset generation and rights confirmation, such as BTC mining. However, in the vast financial superstructure built on trading, clearing, and derivatives, Web2 giants with low-cost compliance advantages will still sit at the main table.
For investors, it is crucial to see this clearly. Where liquidity is, Alpha is. And the current liquidity is irreversibly flowing back to those in suits.
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