The core trend of the next round of traditional financial migration on-chain is that RWA tokenization will become mainstream, with a large number of physical assets being split into on-chain tokens, ranging from real estate and US stocks to private equity.
Written by: Andy, epochChain
Evolution and Replacement of the Global Financial System
Background Introduction
Age of Exploration: The Birth of Financial Origins (15th - 17th Century)
The Age of Exploration laid the foundation for the development of the financial system. The Dutch East India Company pioneered the issuance of stocks to address the enormous capital needs of overseas trade, pricing and splitting "trade revenue rights" for trading, achieving "asset tradability." Ordinary people were able to participate in overseas trade investments and share in the profits. At the same time, marine insurance emerged, allowing ship owners to transfer transportation risks by paying premiums, with the premiums of many ship owners pooling together to form a risk diversification fund, becoming an early model of "risk diversification and pricing." In international trade, gold and silver, due to their scarcity and recognized value, became core settlement tools, solving the trust issues of currency exchange between different monetary systems. At this time, the financial system initially possessed three core functions: revenue generation (stock investment), risk hedging (marine insurance), and value settlement (precious metals), which supported each other and served the needs of trade expansion, constructing the embryonic form of the financial system.
Silver Monetary System and Hegemonic Transition (19th Century)
In the 19th century, the Qing Dynasty occupied an important position in global trade due to the strong competitiveness of products like tea and silk, leading to a large export of Chinese goods that attracted global silver inflow, forming a "Chinese goods - global silver" circulation system, with silver becoming the core settlement currency of global trade, essentially anchoring the settlement medium to the strength of Chinese goods. As the scale of international trade expanded, stock trading extended from Europe to the world, and insurance business expanded from maritime to bulk commodity transportation, but its core logic always revolved around "pricing assets and covering risks." However, the Opium War broke this pattern, as Britain plundered Chinese silver through war, weakening China's monetary base, and implemented "gold standard" based on its own gold reserves, redefining global settlement rules and highlighting the decisive role of national strength in the status of settlement mediums.
Bretton Woods System and the Dollar Era (20th Century)
The Bretton Woods system was established in 1944, linking "the dollar to gold and other currencies to the dollar," transforming the global settlement system from being anchored by precious metals to being centered on "national credit," with the dollar becoming the "central nervous system" of global finance. During this period, the globalization of stock markets strengthened, with exchanges in New York, London, and other cities becoming important centers for global stock trading. The insurance industry applied complex actuarial models, and derivatives were used for hedging commodity prices, with the financial market developing around "more precise asset pricing and more efficient risk hedging." At this time, the financial system was dominated by the dollar for settlement, the stock market carried asset trading, and insurance and derivatives were responsible for risk hedging, with the synergy of these three functions enhancing, driving the operation of the global financial system, and serving post-war economic recovery and development.
Later, the Bretton Woods system collapsed, and the United States quickly reached agreements with oil powers like Saudi Arabia to anchor the dollar to oil, ushering in the era of petrodollars and continuing dollar hegemony. However, by 2024, Saudi Arabia announced that oil would no longer be settled solely in dollars, marking the end of the petrodollar era and facing a reshaping of the global monetary landscape.
Complexity of Modern Finance and Return to Essence (21st Century)
Entering the 21st century, financial innovation reached new heights, with financial instruments such as derivatives, commodity futures, and structured products continuously emerging, leading to increasingly complex trading structures and product designs in financial markets. These innovations enhanced market efficiency and met diverse needs, but regardless of how financial forms change, the core always revolves around "revenue, risk, and settlement." Complex financial instruments are extensions and expansions of traditional financial core functions in a new environment, representing the iteration of "tech," while the three core functions of "revenue, risk, and settlement" are the steadfast "dao," reflecting the essential purpose of financial services to the real economy and optimizing resource allocation.
The Rise of Emerging Financial Forms: The Birth of DeFi and CeFi
DeFi: Blockchain-Driven Decentralized Financial System
The breakthrough of Ethereum's smart contract technology in 2015 provided the technical support for the rise of DeFi. Smart contracts allow financial rules to be executed automatically in code form, eliminating the need for traditional intermediaries, thus changing the financial transaction model. In the DeFi ecosystem, the "DeFi Triad" plays a key role. Essentially, DeFi replicates the core functions of traditional finance, achieving "no intermediaries, fully open, and automated" through blockchain technology, bringing new vitality to the financial system.
CeFi: A Centralized Bridge Connecting Traditional and Decentralized Finance
While DeFi has innovative advantages, it faces issues such as high technical barriers and regulatory ambiguity. CeFi emerged as a bridge connecting traditional finance and DeFi, serving as a "converter."
Its main function is simple: it helps users convert ordinary currencies (like RMB, USD) and cryptocurrencies (like Bitcoin, Ethereum) into each other, making it easier for money to flow between traditional finance and DeFi; it also simplifies DeFi operations with user-friendly interfaces, lowering the participation threshold for ordinary people, and is responsible for safeguarding user assets to ensure security; additionally, under regulatory compliance, it also undertakes the business needs of traditional financial institutions (like banks, securities firms) on the blockchain, helping these institutions explore on-chain business and promoting better integration of traditional finance and DeFi.
Integration of Tradition and Innovation
Role Positioning and Dilemmas of the Three Systems
TradFi
TradFi refers to the traditional finance we usually encounter, such as depositing money in a bank, transferring funds, buying stocks or funds at a securities firm, or purchasing gold and bonds.
For example: if you want to transfer $10,000 to a friend abroad but cannot operate it directly, you must find a bank with cross-border services to help: the bank will first convert RMB into the currency of the other country, charge fees and exchange rate differences as per regulations, and then circulate it through the SWIFT system. However, you have to fill out a bunch of forms and go through several reviews, often waiting several days for the funds to arrive, with fees potentially costing hundreds of dollars. The bank is responsible for the entire flow of this money, and if there are any issues, you have to resolve them with the bank.
This is the model of TradFi—whether it’s cross-border transfers, buying stocks, or loans, it all has to go through banks and brokers, which set the processes, charge fees, and bear responsibilities. You cannot bypass them directly, and this model also brings issues of low efficiency and high costs in cross-border settlements. Additionally, many countries rely on dollar settlements for business, and once the dollar exchange rate fluctuates, it can lead to losses.
CeFi
CeFi refers to centralized cryptocurrency financial platforms, serving as a "bridge" between traditional finance and the cryptocurrency world. It can provide exchange channels; simplify steps for those who do not understand technology to participate easily; and help traditional institutions like banks and brokers comply with regulations while engaging in crypto asset-related businesses, promoting integration on both sides. However, it also has drawbacks: current regulations have not fully caught up, and platforms often make unilateral decisions. Sometimes, to profit, platforms may secretly misappropriate user assets.
For example: if you want to convert your salary into Ethereum for crypto investment, direct operation is too complicated, so you can use a well-known cryptocurrency exchange's CeFi platform, first recharge RMB via a bank card, convert it to Ethereum with one click, and then use the platform's simplified investment function to earn returns. The entire process does not require you to study complex technology; the platform handles it all, but you have to trust that the platform will not run away with your money.
DeFi
DeFi refers to "decentralized finance" built on blockchain technology, operating without intermediaries like banks or brokers, relying on smart contracts for automatic operation, with transparent transactions visible to everyone. It allows transfers and borrowing to be faster and cheaper, and regardless of wealth or location, anyone who understands blockchain operations can use its services. However, it also has challenges: ordinary people need to understand wallets and private keys to use it effectively, which can be a high barrier; and if there are vulnerabilities in the code, it may be targeted by hackers to steal funds.
For example: if you have Bitcoin and want to exchange it for Ethereum, you can connect your wallet directly to a DeFi platform without going through an exchange, select the exchange rate, and the smart contract will automatically convert your Bitcoin to Ethereum, with the funds going directly to your wallet, all without intermediaries involved. The fees are lower than exchanges, and the transfer is faster, but you must safeguard your wallet keys; otherwise, if lost, the money cannot be recovered.
The Foundation for Building the "Trifi" Ecosystem
Here, we propose a brand new concept—Trifi (the fusion form of "TradFi + CeFi + DeFi"). The on-chain migration process of traditional finance is essentially the integration of traditional finance (TradFi), centralized finance (CeFi), and decentralized finance (DeFi): through gradual penetration and collaboration, ultimately giving birth to the new financial form "Trifi." This path profoundly reflects the underlying evolutionary logic of the financial industry from fragmentation to interconnection, from competition to symbiosis, and "Trifi" is the ultimate form and core product of this evolutionary process.
Core Logic of Complementary Advantages: The Value Symbiosis of the "Trifi" Ecosystem
The reason why TradFi, CeFi, and DeFi can integrate to form the Trifi ecosystem lies in the complementary core advantages of the three, which, through synergistic effects, address the pain points of traditional finance and single on-chain finance, constructing a more resilient financial system.
For example, suppose a traditional real estate company (a TradFi institution) holds commercial real estate valued at $10 million. To enhance the liquidity of its assets, it splits the property and tokenizes it into "Token A" (with each token corresponding to a share of the property) through a compliant process and completes regulatory filing. As the asset provider, it transforms offline assets into on-chain tradable digital assets. The real estate company then chooses a cryptocurrency exchange (a CeFi platform) as an intermediary node, where users can transfer dollars into stablecoins through the platform's compliant channel using their bank accounts. Meanwhile, the real estate company deposits Token A into the platform's custody account, and after the platform's review, it lists the trading pair. Investors can purchase Token A on the platform using stablecoins, which they can hold on the platform or withdraw to their personal blockchain wallets. The platform can connect traditional fiat currencies while providing a compliant trading scenario for Token A, paving the way for users to enter DeFi and building a cross-system bridge. Users holding Token A can transfer the tokens from the platform to a DeFi lending protocol, where the lending protocol automatically reads the on-chain data of Token A through smart contracts to assess its value, allowing users to borrow stablecoins against Token A as collateral. The entire lending process requires no manual review, with collateralization and liquidation executed entirely by code. DeFi provides decentralized financial tools, enabling real estate assets, which could only be traded in traditional markets, to achieve new functionalities of on-chain collateralized lending, significantly enhancing the capital efficiency of the assets. The three parties collaboratively complete the full process of migrating traditional assets from offline to on-chain.
In summary, TradFi provides capital, CeFi serves as a channel, and DeFi offers technical support. The combination of the three allows the "Trifi" ecosystem to not only accommodate massive traditional capital but also unleash the innovative potential of on-chain finance.
Construction and Development Trends of Future Financial Systems
Core of the Circulation System: The Evolution of Payment and Settlement
Revolution in Cross-Border Trade Scenarios
In the field of cross-border trade, blockchain technology is profoundly reconstructing the cross-border settlement system.
Take the Lightning Network as an example; it acts like a "fast lane" on the Bitcoin platform. Previously, transferring small amounts of money across countries was not only slow but also incurred high fees. Now, with it, funds can arrive in seconds, and the fees have significantly decreased. This means that small businesses or individuals engaging in cross-border small trades can have quicker cash flow and lower costs, making them more willing to engage in global small transactions.
Now, consider bulk commodity trading, such as oil trading, where a technology called Layer 2 is being utilized. This technology allows transactions to be smoother and costs to be lower. It can also turn bulk commodities into "digital tokens," similar to converting oil into a string of digital codes. Buyers and sellers no longer need to go through the cumbersome processes of opening letters of credit or exchanging shipping documents; they can directly trade these digital tokens through smart contracts, allowing for immediate settlement and significantly improving transaction efficiency.
Innovation in Social and Inclusive Scenarios
Embedding payment functions into decentralized social platforms is becoming a trend.
New methods are making financial services closer to our daily lives, such as "sending red envelopes on-chain" and "peer-to-peer direct small transfers." Previously, when we wanted to transfer some money, we either faced high fees or were limited to a few payment platforms, making the process cumbersome. Now, on some decentralized social platforms, using cryptocurrencies for small transfers is much more convenient, with lower fees and no convoluted processes. This is particularly useful for people in remote areas without bank accounts or with low incomes. Previously, they might have found it difficult to access formal financial services, but now, through these new methods, they can participate more easily, lowering the barriers to financial services.
The Role of the State in Payment and Settlement
For a long time, large and complex cross-border trade settlements have had to be led by the state. The state ensures stable and secure settlements through monetary policy formulation, financial institution regulation, and participation in international financial cooperation. For instance, in trades involving strategic resources like oil and minerals, the state strictly controls which currencies are used for settlement and how settlements are conducted to safeguard national economic security and interests.
However, as blockchain technology matures and becomes more user-friendly, small and medium-sized cross-border settlement businesses will gradually shift to blockchain. At this point, governments can introduce relevant policies and regulations to standardize and guide the use of blockchain in small and medium-sized cross-border settlements, ensuring that financial technology can innovate while maintaining effective regulation, thereby enhancing the country's competitiveness in the global financial market.
The Struggle for Pricing Power and Stablecoin Anchoring
Challenges to Dollar Hegemony
The hegemonic position of the dollar in the global financial system is facing challenges in the era of digital currencies. The United States is attempting to strengthen regulation of stablecoins through legislation like the "GENIUS Act" to maintain the dollar's on-chain pricing power. Currently, most mainstream stablecoins (such as USDT and USDC) are pegged to the dollar, with U.S. regulations ensuring that stablecoin issuers maintain reserves and operational models closely tied to the dollar, solidifying its core position. However, the global economic landscape is becoming increasingly multipolar, with other countries and regions actively exploring regional settlements to reduce dependence on the dollar.
Development of a Multipolar Stablecoin System
China is actively promoting the pilot development of the digital yuan, which features controllable anonymity and dual offline payment capabilities. Domestic pilots have already covered retail, transportation, and government services, and it is expected to play a larger role in trade settlements along the "Belt and Road" countries, promoting the internationalization of the yuan. The European Union is also exploring the development of digital currencies to enhance Europe's voice in the global financial system and reduce the impact of dollar fluctuations. These regional settlement schemes will challenge the dollar's dominant position in the stablecoin sector, driving the global financial system towards a stablecoin system characterized by "dollar dominance and coexistence of multiple currencies," promoting diversification in the financial system.
New Opportunities: The On-Chain Migration of Traditional Finance and DeFi 2.0
Development Trends of RWA Tokenization
RWA (Real World Assets) tokenization is an important direction for future financial development. Traditional financial assets such as U.S. stocks, private equity, and real estate are entering the DeFi ecosystem through on-chain token issuance, becoming new collateral and trading targets. For instance, with U.S. stocks, after tokenization, investors can trade and lend stock tokens on DeFi platforms, broadening investment channels and providing new financing avenues for listed companies. The tokenization of private equity enhances asset liquidity, while the tokenization of real estate assets lowers investment thresholds, allowing more people to participate in investments and share in profits, closely integrating traditional finance with DeFi and injecting vitality into the financial market.
Core Goals and Development of DeFi 2.0
DeFi 2.0 aims to replicate the complex scenarios of traditional finance, creating a "Wall Street on-chain." It will develop complex financial businesses based on RWA such as U.S. stock tokens, including lending and derivatives trading. By utilizing smart contracts and blockchain technology, it will enable the on-chain realization of complex traditional financial products and trading strategies. Investors can use U.S. stock tokens as collateral to borrow funds for investment or purchase futures and options based on U.S. stock tokens for risk management and speculative trading, enriching the financial products and services in the DeFi ecosystem and improving the efficiency and transparency of financial markets.
The Role of Traditional Financial Institutions in Promotion
As regulatory policies improve, traditional financial institutions are becoming more accepting of crypto assets. Banks, asset management companies, and others are entering the crypto asset field, participating in the construction of the DeFi ecosystem through investment and collaboration. They bring substantial capital, professional talent, and mature risk management experience, helping to promote crypto assets as a mainstream investment category. Traditional financial institutions leverage their brand and customer resources to promote crypto asset investment products, enhancing market recognition and liquidity, while their compliant operations facilitate the standardization of the crypto asset market, creating a favorable environment for the deep integration of traditional finance and emerging finance.
Conclusion
In the next round of traditional financial on-chain migration, RWA (Real World Assets) tokenization will become mainstream, with a large number of physical assets being split into on-chain tokens, from real estate and U.S. stocks to private equity, becoming "new altcoins backed by real entities," driving the arrival of the "altcoin season." The Ethereum ecosystem, relying on mature DeFi infrastructure and compliance, will become the core carrier of RWA tokenization, achieving cross-chain circulation and lending of assets through smart contracts, with the explosive point being the deep integration of RWA and DeFi.
Key tracks will focus on RWA tokenization, DeFi innovation within the Ethereum ecosystem, and compliant on-chain exchanges (such as Nasdaq's on-chain platform). Unlisted companies can tokenize private equity through compliant processes to raise funds on on-chain exchanges without traditional IPOs, lowering the barriers to listing. Meanwhile, TradFi provides assets and compliance frameworks, while DeFi offers on-chain tools to achieve "nested" functionalities (such as generating stablecoins through RWA collateral and then using stablecoins to invest in other tokenized assets), with both sides collaborating to shift the market from speculation to "on-chain financialization of real assets."
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