Written by: Charlie.hl, desh_saurabh
Translated by: Block unicorn
Introduction
The New York Stock Exchange is open five days a week, for only 6.5 hours a day, which accounts for just 27% of the total workday. During the remaining 73% of the time from Monday to Friday, the trading system is inactive. How do we solve this problem?
There are over 17 hours each workday during which we cannot know "how much someone is willing to pay for this asset globally right now," because the infrastructure for price discovery has been deliberately shut down. This creates a paradox at the fundamental level of modern trading: an asset that can be traded at any time is more valuable than a similar asset that can only be traded within a six-hour window—this is the value of liquidity. The ability to enter or exit a position when information arises is valuable, and this article will later elaborate on the direct losses traders face when they cannot enter the market when opportunities arise. Yet, we have built a market worth trillions of dollars within a system that prevents traders from accessing liquidity for over 70% of the time.
Strangely, the issue is not that technology cannot support continuous or extended trading hours. The gap between what technology can achieve and how the market actually operates has never been wider. We can instantly connect with someone on the other side of the globe and complete peer-to-peer payments in seconds. But if you are chatting with a friend on Saturday night about Tesla and its future, and your friend wants to buy Tesla stock at 3 AM, that is simply not possible. Not because there are no sellers, nor due to a lack of technology to facilitate the transaction, but because the mechanisms of market operation are built on an era when information was transmitted via telegraph and settlements required physical certificates.
This is important because every hour the market is closed, information continues to accumulate; earnings reports are released after the market closes, geopolitical events occur overnight, and company announcements are made on weekends, etc. All this information has value, and that value gets compressed into the first few minutes of the next trading day. The result is price gaps and spikes in volatility, and the losses caused by this inefficiency are not evenly distributed among all market participants but are primarily borne by traders who lack hedging tools.
The assumption that markets must close has become so entrenched that most participants have never questioned it. Why should the ability to discover an asset's fair price depend on your time zone or the day of the week? The answer reveals a system optimized against restrictions from decades ago, which we will explore in this article, along with solutions for on-chain price discovery and market operations.
The Overnight Gap Problem
The inefficiency of market closures manifests in data as a persistent and quantifiable drag on returns. Study after study has documented the same anomaly: most of the gains in the U.S. stock market occur during off-hours.
From 1993 to 2018, the cumulative overnight return of the S&P 500 index averaged 2.75 basis points higher per day than intraday returns. When compounded annually, this results in a difference in annualized returns of about 7.2%. That is not a small amount.
However, if we focus on a specific time period, the situation becomes even more extreme. From 1993 to 2006, all the premiums in the U.S. stock market were generated overnight. If you bought at the close and sold at the open, you would capture all the gains. If you bought at the open and sold at the close, your returns would be zero or even negative. There were no gains during actual trading hours. All gains accumulated in the price gaps.
Traders have been well aware of this for decades. Strategies that exploit overnight price fluctuations for statistical arbitrage have achieved annualized returns exceeding 51%, with a Sharpe ratio above 2.38. Between 1998 and 2015 alone, researchers recorded 2,128 overnight gaps in the S&P 500 index. This pattern is consistent and exploitable, indicating that the market's pricing of risk is inaccurate. If pricing were accurate, such opportunities would not persist.
Negative gaps are larger and more volatile than positive gaps. When bad news is released after hours, the market overreacts. Overnight price declines are significantly greater than price increases, and the standard deviation of negative gaps is also noticeably higher than that of positive gaps. This creates tail risks that cannot be reflected in intraday trading. If you hold a position overnight, you face unhedged downside risk due to the market being closed.
This is not how an efficient market operates. Theoretically, prices should reflect all available information at all times. But in reality, prices can only reflect information when the market is open and updating. Closed periods create blind spots. Information arrives, but prices cannot adjust in a timely manner; by the time adjustments are made, the opportunity has passed, and the chance to trade at fair value disappears.
A few investors who can trade after hours face different problems. After-hours trading accounts for only 11% of total daily trading volume, while overnight trading from 8 PM to 4 AM constitutes just 0.2% of market activity. This lack of liquidity leads to predictable costs.
Distribution of Nasdaq's minute-by-minute trading volume in January 2025
After exchanges stop trading, spreads widen dramatically. For stocks that are traded overnight, the bid-ask spread is about 40% wider than during normal trading hours. For less liquid stocks, the spread can balloon to 144%. The market depth for the most active stocks drops to just 47% of normal levels. As a result, the actual spread for retail orders executed overnight is three times that of daytime trading, and price impact increases sixfold.
Overnight Quote Study — Eaton, Shkilko, and Werner
Transaction costs also differ significantly. The cost of after-hours trading is four to five times that of normal trading hours. Most overnight trades are executed at prices equal to or below the best quotes. Who would trade in such an environment? According to Nasdaq data, about 80% of overnight trading volume comes from the Asia-Pacific region, with about half from South Korea. The remaining 20% is primarily made up of U.S. retail investors. These retail investors are mostly individual traders trying to respond to information in real-time, for which they pay several times the normal trading costs.
Retail investors bear a double whammy from this structural flaw. They lack good pre-market trading infrastructure. They cannot adjust positions after hours without paying exorbitant spreads. When the market gaps due to overnight news, their positions can move unfavorably while they sleep. Professional traders with around-the-clock trading infrastructure capture the gains, while retail investors suffer the losses.
The scale of this wealth transfer is quite substantial. The average annualized return for retail investors is 5.2% lower than that of the S&P 500 index.
20-Year Annualized Returns of Various Assets — Dalbar and JPMorgan
When overnight returns consistently exceed intraday returns by 7%, retail investors systematically miss out on this premium due to their inability to optimize their positions, and the long-term compounding effect is evident. Think about it: this is not just a matter of timing ability or stock-picking skills; it is an inherent structural disadvantage of the market architecture itself.
Geographical Fragmentation
Time fragmentation is just one aspect of the problem. The market is also spatially fragmented. The trading price of the same asset can differ across countries/regions. This is not only because participants in one market have more information than those in another, but also because infrastructure hinders price convergence.
Between 2017 and 2018, the average premium for Bitcoin on Japanese exchanges was about 10%. We witnessed this phenomenon firsthand in the Japanese Bitcoin arbitrage trades we implemented before Sam Bankman-Fried founded FTX in 2018. This price difference was entirely due to outdated and disconnected existing infrastructure in an increasingly interconnected world.
This phenomenon is even more pronounced in South Korea. From January 2016 to February 2018, the average price of Bitcoin on South Korean exchanges was 4.73% higher than on U.S. exchanges. In January 2018, the premium reached as high as 54%. At the peak of prices, you could buy Bitcoin in the U.S. for $10,000 and sell it in South Korea for $15,000.
Why does this premium exist? South Korea has strict capital controls, making it very easy for funds to flow into the country. However, transferring funds out requires compliance with complex regulations aimed at preventing money laundering and capital flight. These restrictions make it difficult to profit from price differences on a large scale, even when such opportunities are evident. For most participants, the infrastructure required for arbitrage simply does not exist.
But this is not a phenomenon unique to cryptocurrencies. Traditional stocks exhibit the same pattern. Dual-listed companies on two exchanges often have persistent price deviations that can last for months or even years. For example, the stock price of Royal Dutch Shell listed in Australia and London is significantly higher than its price listed in the UK. Although Rio Tinto provides the same dividends and capital rights to shareholders, there are significant price differences for its stocks listed in Australia and London.
These price discrepancies should not exist. If the market were truly efficient and globally integrated, arbitrageurs would immediately eliminate any price differences. Buy low, sell high, and profit from the spread.
The reason lies in geographical fragmentation. An investor in Utah cannot buy Indian stocks at 2 AM. This is not because there are no sellers in India, nor because the asset is inaccessible. Buyers want to buy, sellers want to sell, but the infrastructure does not allow them to connect frequently. Although technology has long since eliminated any technical barriers to global instant trading, markets remain isolated from each other due to geography.
When cryptocurrency trading volumes surged between 2017 and 2018, the total potential arbitrage profits between the U.S., South Korea, Japan, and Europe exceeded $2 billion. But the infrastructure at the time could not capture these profits. This is the cost of fragmentation. Price discovery occurs in isolated regions rather than globally, liquidity is dispersed across various regions, and investors who happen to be in the wrong place at the wrong time must pay a premium simply because the market refuses to treat the same asset as the same.
The Situation in Private Markets is Worse
The public market is closed 73% of the time each week. The private market has never been open.
As of June 2023, the assets under management in private equity have ballooned to approximately $13.1 trillion. Companies that once rushed to go public now linger in private hands for ten years or more. The average time from founding in 1999 to IPO has extended from four years to over ten years today. By the time retail investors can invest in these companies through the public market, most of the value creation has already occurred behind the scenes.
The secondary market for private equity does exist, but calling it a market is overly optimistic. Transactions typically take about 45 days to complete. In today's market environment, the T+2 settlement speed of the stock market seems quite fast. Price discovery is achieved through private negotiations between the trading parties, who may or may not have accurate information about the underlying asset. In June 2024, SpaceX was valued at $210 billion by some secondary market buyers, while just six months earlier, its trading price was only $180 billion.
Stripe has also experienced similar fluctuations. Secondary market transactions show the company's valuation fluctuating between $65 billion and $70 billion, depending on the buyer and the timing of the trade. Due to the lack of a continuous price discovery mechanism, valuations drift rather than converge.
The cost of this lack of liquidity is reflected in persistent discounts. In the first quarter of 2025, the average secondary market trading price for pre-IPO stocks was discounted by 16% compared to the previous round of financing. This is the price you must pay to exit. Due to the inability to trade continuously, each transaction requires giving up a considerable amount of value to access one's own funds.
Over $50 billion is trapped in pre-IPO companies. Funds have been invested but cannot be accessed. Valuations are uncertain, and exit timelines are unknown. The existing system lacks the infrastructure to provide liquidity for these assets. Investors hold positions that cannot be priced or sold, watching opportunities slip away while their funds remain locked in.
The gap between what technology can achieve and what the private market actually offers is even larger than that of the public stock market. We have the capability to make any asset tradable, enabling continuous price discovery and eliminating geographical barriers. Yet, we maintain a system where access depends on connections, pricing relies on behind-the-scenes deals, and liquidity is contingent on the decisions of those in power.
Infrastructure Mismatch
The persistence of inefficiency is due to the infrastructure being designed not to adapt to the world we live in today.
When the New York Stock Exchange was established in 1792, settlements required physical certificates. Buyers and sellers needed time to deliver paper certificates, verify their authenticity, and record ownership changes in manual ledgers. The settlement mechanism determined the market's rhythm. While technology has advanced, the underlying architecture has remained largely unchanged.
Today, purchasing stocks still requires two business days for settlement. This is known as T+2, shortened from T+3 in September 2017, as if reducing the time from three days to two represents a revolutionary advancement. Trades are executed instantly, and your account immediately reflects the position. However, the actual settlement—the moment ownership is formally transferred and the transaction is completed—still requires a 48-hour wait.
Given that instant settlement technology has existed for decades, why does this delay still persist? Because the current system involves multiple intermediaries, each additional layer adds delay. Your broker sends the order to the exchange. The exchange matches buyers and sellers. Trade information flows to the clearinghouse. The clearinghouse becomes the counterparty to both sides of the trade, assuming the risk that either party may fail to deliver. Custodians hold the actual securities. Transfer agents update ownership records. Each institution operates its own system on its own timeline, processing trades in batches rather than continuously in real-time.
Layered Infrastructure
This layering of intermediaries also means a layering of costs. Clearinghouses charge fees, custodial institutions charge fees, and transfer agents charge fees. The infrastructure itself extracts value from each transaction. Funds are tied up that could otherwise be used elsewhere. Transactions that should be completed instantly are stretched over several days, passing through multiple intermediaries. The appearance of digital markets conceals the fact that settlements still follow a model designed for physical certificates and telegraphic communication.
What would the market look like if settlements were truly instant? If ownership transferred atomically at the moment a trade is executed, what would the market look like? If no intermediaries were needed between buyers and sellers because the transaction itself was guaranteed by cryptographic technology, what would the market look like? The infrastructure to build such a system already exists. The issue is not technological capability, but whether the market will migrate to a track that aligns with existing technology.
Architecture of a Continuous Market
The promise of a continuous market goes far beyond extending trading hours at exchanges. A true continuous market fundamentally redefines the price discovery mechanism, with trading infrastructure operating continuously, unaffected by business hours, geographical limitations, or settlement delays.
In a continuous market, when news is released at 3 AM Eastern Time, the market reacts immediately, rather than building pressure like traditional markets and then releasing it violently at 9:30 AM when they open. The overnight gap problem disappears entirely because there is no overnight period.
Settlements are completed almost instantaneously, rather than the two-day cycle common in traditional infrastructure. When investors close their positions at 2 PM, their risk exposure is immediately eliminated, rather than waiting for 48 hours for settlement to finalize, as in traditional markets. This eliminates the risk window where portfolio risk exposure remains even after a trade has been executed. Funds locked in clearinghouse margins can be immediately redeployed rather than sitting idle during a multi-day settlement cycle.
On-chain infrastructure makes all this possible by maintaining a continuously operating global synchronized ledger. Platforms like Hyperliquid demonstrate the scalability of this technology with sub-second settlement finality and round-the-clock operation. Their infrastructure can process hundreds of thousands of orders per second while maintaining complete transparency for each transaction. Regardless of location or local time, participants can access the same liquidity, and trade settlements are completed through consensus mechanisms rather than the time-consuming batch processing between intermediaries of the past.
The key breakthrough lies in replacing the traditional market's layered architecture with a unified execution mechanism. Modern exchanges coordinate the operations between brokers, clearinghouses, and custodial institutions through systems designed for the era of physical stock trading. In contrast, on-chain systems integrate these layers into a single settlement mechanism, where trade execution and final settlement are completed atomically. The same trade that matches buyers and sellers also transfers ownership with cryptographic finality.
This possibility changes the way markets operate. Retail investors can avoid the systemic disadvantages of overnight gaps, while institutional traders can leverage after-hours trading for excess returns. At 10 AM Tokyo time, a Japanese pension fund rebalances its portfolio, and the liquidity of its trade is the same as that of a hedge fund operating in California at 5 PM Pacific Time, with both orders coming from the same global pool of capital. This is precisely the price discovery mechanism we desire. Just because someone is in South Korea should not mean they pay a 50% premium to buy Bitcoin compared to someone in the U.S.
Achieving On-Chain Perpetual Price Discovery
Existing infrastructure already supports applications that go beyond crypto-native assets. Tokenization companies like Ondo Finance have created blockchain versions of popular global stocks, including Tesla and Nvidia. These tokenized versions trade 24/7 and settle instantly on-chain, while market makers exploit price discrepancies with traditional trading venues to maintain a 1:1 price match. This arbitrage mechanism keeps the prices of tokenized stocks aligned with their off-chain counterparts, but as on-chain liquidity and update speeds surpass traditional markets, the direction of price dominance may reverse. Ultimately, market makers will primarily quote based on on-chain pricing rather than viewing the blockchain market as a derivative market following traditional exchange prices.
This shift completely eliminates the need for centralized ownership databases. Trusted platforms like Fidelity or Charles Schwab can build advisory services and user-friendly front-end interfaces on top of blockchain infrastructure, while actual asset trading and settlement occur transparently in the back end. Tokenized assets will become productive capital, serving as collateral in lending markets or for yield strategies, while maintaining continuous tradability and transparent ownership records accessible to all participants.
The impact extends far beyond this; it also reaches areas where transparency is currently even lower than in public stock markets. The private market for secondary stocks and pre-IPO assets suffers from information asymmetry, primarily caused by geographical location and distance from potential trading partners. Blockchain infrastructure enables these opaque markets to be accessed globally, facilitating continuous price discovery.
Protocols built on Hyperliquid infrastructure are supporting perpetual futures contracts for public and private equity. Ventuals provides leveraged perpetual exposure to pre-IPO companies, including OpenAI, SpaceX, and Stripe, allowing traders to take long and short positions on these private assets with leverage. Felix Protocol and trade.xyz offer similar perpetual contracts for listed stocks, allowing stock trading to extend beyond exchange trading hours and enabling 24/7 trading. These stock perpetual contracts settle on-chain, featuring instant finality and transparent execution like crypto-native assets, thus eliminating the common settlement delays and geographical restrictions of traditional stock derivatives.
Currently, these platforms use oracle systems to aggregate price data from various off-chain sources, which is then uploaded to the chain for settlement. For pre-IPO assets, oracles integrate fragmented information from secondary markets, tender offers, and recent financing rounds to establish reference prices. For listed stocks, oracles obtain prices from traditional exchanges during trading hours and run a more self-referential pricing system during non-trading hours. However, as more stock trading migrates to the chain for primary execution, these oracle systems will become unnecessary. The on-chain order book itself will provide continuous price discovery, and perpetual contract platforms will be able to offer leveraged exposure directly based on this transparent price data.
These applications share a common architecture. Traditional markets experience liquidity fragmentation due to time zone differences, restrict access based on geographical location or accreditation status, and delay settlements through multi-party coordination processes. On-chain trading infrastructure unifies liquidity globally, providing open access to any participant with internet connectivity, and achieves atomic settlement through cryptographic consensus. The result is that assets that could previously only discover prices through opaque bilateral negotiations or sporadic trading during limited trading hours can now continuously discover prices.
Market makers provide continuous liquidity across all trading periods, rather than withdrawing during periods of market volatility or scheduled maintenance windows. This infrastructure maintains order book depth across all trading periods, rather than reducing order book depth when regional participation declines. As the global pool of participants becomes more competitive, bid-ask spreads narrow, and isolated trading windows do not occur.
These capabilities already exist and operate at a considerable scale. The infrastructure processes hundreds of billions of dollars in trading volume each month while maintaining sub-second settlement and continuous normal operation. Expanding this architecture from crypto-native assets to tokenized stocks and ultimately to private market instruments primarily requires regulatory adjustments rather than technological innovations. This technology demonstrates that markets can operate as a unified global mechanism rather than a collection of regional exchanges handing off trades according to schedule.
Continuous markets eliminate the artificial constraints on price discovery imposed by traditional infrastructure. They replace fragmented regional trading hours with perpetual global access, multi-day settlement cycles with instant settlements, and opaque private negotiations with transparent order books. This technology now exists and is operational at scale, indicating that markets no longer need to close, and assets no longer need to be traded in the shadows. Bringing price discovery on-chain.
免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。
