Recently, I saw two news items:

The first is that the founder of StableStock discussed in an interview (see reference link 1) that the on-chain brokerage business is not an easy business to operate.

The second is that a crypto asset real estate platform announced liquidation (see reference link 2).

On-chain brokerage is currently a hot business in the RWA field. Many of our readers are familiar with it. The recently emerged Robinhood chain advocates moving stocks on-chain, so it can create a synchronized market of both on-chain and off-chain transactions and build a comprehensive trading ecosystem.

For users, the main differences between trading stocks on-chain and trading stocks in traditional markets are twofold: one is the trading medium (fiat vs stablecoin), and the other is the trading venue (traditional exchanges vs blockchain).

Despite these two differences, for many long-time players immersed in the crypto ecosystem, these distinctions are not significant obstacles, at most leading to some adaptation issues.

Thus, we might habitually extrapolate linearly, thinking that for “on-chain brokers” providing such services, there are not too many barriers to entering this business.

However, the founder of StableStock pointed out in the interview some truths and barriers that the general public may not see, mainly including the following points:

The first is the need to apply for securities licenses or financial service licenses from regulatory authorities.

Different regions have different processes and rules set by their regulatory bodies, but anytime one wants to expand their business scope or target more users, this process becomes longer and more complex.

The second is that the business model is still in exploration and experimentation.

The interview mentioned two types of profitable business models, but from the interviewee's tone, it is clear that these models have not yet undergone sufficient validation, leaving future uncertainties.

The third is the significant increase in various manpower costs and administrative costs brought about by compliance requirements.

The fourth is the challenges presented by the price volatility and liquidity of trading products.

After reading this interview, my most intuitive feeling is:

Even if the on-chain brokerage business can achieve a formal DeFi structure, it still implicitly involves many frictional barriers brought about by regulations and centralized operations.

And the reason why some on-chain brokers that appear to be very close to DeFi and offer smooth trading experiences can achieve good results and attract many customers is likely due to current regulatory oversight being temporarily lax, allowing them not to invest too much energy and costs in compliance. However, once regulation begins to intervene in the future, their barriers and frictional costs will become increasingly substantial.

This is inevitable; it's just a matter of time.

The crypto real estate company mentioned in the second news item is RealToken (RealT).

This company's main business is to tokenize rental income from properties in places like Detroit into ERC-20 tokens. Investors buy tokens to share in the rental income.

However, due to regulatory restrictions in the United States, its business cannot target U.S. residents and can only serve other regions.

Ultimately, this company’s properties were sued by the Detroit city government due to issues such as overdue taxes, water bills, and violations, which led to the suspension of normal rental payments, forcing the company to liquidate.

The core issues of RealToken are mainly two:

The first is likewise due to regulatory issues that limit the user base.

The second is because there are problems with the real businesses tied to the tokens—this starkly illustrates a truth: RWA only changed the form but not the essence of the business. If the business essence is poor, simply changing the surface or putting on a disguise will not change the business.

These two news items may seem unrelated, but in my view, they both highlight two very noteworthy common points:

First, the costs brought by regulations to RWA businesses, especially the hidden costs, are enormous. Some "hidden costs" manifest as increased operating expenses (first news), while others show as limited customer bases and difficult business operations (second news).

Second, the business model of RWA does not currently seem to bring significant innovation; they remain closely related to traditional business models—it’s essentially still a traditional business model. Therefore, RWA is merely superficial, while the essence is still the traditional business model. If the model is poor, tokenization makes no sense.

Reference links:

1 https://www.odaily.news/zh-TW/post/5212364

2 https://x.com/PANewsCN/status/2082355581021766113?s=20

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