What is the difference between on chain stock market and exchange stock market? What is the difference between on chain stock contracts and exchange stock contracts? I have recently written several articles on the topic of "stocks". In both @ RealityFi_xyz and @ BITstocks_CN's previous articles, some friends asked about the fundamental differences between the current model of US stocks on exchanges and on chain US stocks like @ xStocksFi. Which one is better and which one is more suitable for friends to buy. I think this question is good, let's talk about it from my personal understanding. 1. Stock model of the exchange The US stocks within the exchange, such as Reality and BIT, are essentially closer to the front-end exchange entrance+back-end brokerage system model. The biggest advantage of this model is that liquidity is ultimately anchored to traditional securities markets such as Nasdaq and the New York Stock Exchange. That is to say, users can trade between Nvidia and Tesla in Reality and BIT SPY、QQQ， Waiting at the bottom is not creating a price out of thin air, but connecting to the real US stock market through brokerage channels, market makers, underlying securities holdings, clearing, and custody systems. Simply put, the biggest advantage of US stocks within the exchange is that prices and liquidity come from the real US stock market, rather than the platform creating an isolated pool on its own. Of course, there are differences in the front-end product form between the two, but the commonality is that both have to connect to the real securities market at the bottom, rather than completely separating from Nasdaq and the New York Stock Exchange to create their own set of prices. And in terms of holdings, it's the same. We all know that some stocks can receive dividends, split shares, merge shares, and may also have voting rights, cash distributions, and other behaviors. When the underlying holdings are real stocks, these behaviors have at least a real asset base to handle. For example, Nvidia's stock split, Tesla's dividends, and SPY cash distribution, as long as the underlying custody and account structure design are complete, the platform can map these rights to users according to rules. 2. The pattern of on chain stocks The key to on chain stocks is to turn the price exposure of stocks into assets that can be freely held, transferred, combined, and integrated into DeFi on the chain. Users hold on chain tokens that can be stored in their own wallets, used across protocols, and can be integrated into on chain lending, on chain asset management, on chain revenue strategies, and on chain collateral systems. In the future, they may even become basic collateral assets in DeFi protocols. This is the biggest advantage of on chain stocks, which is their openness. Unlike exchanges, on chain secondary circulation may be permissionless in some cases, and user transfers and combinations in DeFi protocols may not require KYC at every step like centralized exchanges. But the issue of on chain stocks is also more complex. Firstly, there is the issue of liquidity. The existence of a US stock token on the chain does not necessarily mean it has the depth of Nasdaq and the New York Stock Exchange. This is also the biggest difference between on chain stocks and exchanges. If there is no efficient arbitrage between on chain trading pools, market makers, redemption mechanisms, and underlying securities, on chain prices may deviate from real stock prices. And there are also contract and oracle risks. The traditional brokerage model mainly involves financial institution risks, while the on chain model also has to bear additional risks of smart contracts, oracle, cross chain, and protocol governance. Some on chain stocks still have legal rights issues. Are users receiving the beneficial rights of underlying stocks or the economic exposure provided by the issuer? Is there any dividend processing? Is there a redemption right? Can we pursue underlying securities in extreme situations? These are all possible risks that may exist. 3. Comparison between exchange and on chain stocks Exchange stocks address trading experience and liquidity issues. Allow users to directly buy stocks in their exchange accounts, with prices following the real market and liquidity coming from traditional securities markets. The operation path is similar to buying coins, without the need to manage their own wallets Gas、 Cross chain and contract interaction. For most ordinary users, this method is simpler and easier to understand. On chain stocks solve the problems of asset openness and composability. It can allow US stock exposure to leave a single platform and enter on chain wallets and DeFi protocols, where it can be transferred, collateralized, loaned, combined, and reused (most on chain stocks do not yet have these functions). The imagination is great, but the requirements for users' understanding ability, risk tolerance, and on chain operation ability are also higher. So if you just want to buy Nvidia, Tesla SPY、QQQ， If you want better liquidity, lower operating thresholds, and prices closer to traditional US stocks, then internal US stocks on exchanges are more suitable. But if the user is already an on chain user and familiar with wallets DeFi、 Contract risk, and also hope that US stock assets can be stored in one's own wallet, on chain asset management, and other DeFi strategies, so that on chain stocks will be more attractive. However, currently there is still a lack of unified specifications for on chain stocks, resulting in incompatible issuers of various on chain stocks. Simply put, the core advantages of the exchange stock market are liquidity and experience, while the core advantages of the on chain stock market are openness and composability. The exchange model is more suitable for ordinary users to trade, while the on chain model is more suitable for DeFi users who are sensitive to KYC. 4. The difference between on chain stock contracts and exchange stock contracts In fact, for most cryptocurrency investors, stocks may not be what they really want to pursue, after all, compared to cryptocurrencies, especially Meme or altcoins, the volatility of stocks is still relatively low. That is to say, the outbreak of AI has led to some stocks having high volatility, but in most cases, the volatility of most stocks is not as high as BTC or ETH. So what do these buddies most hope for? They hope for stock contracts and leverage. Compared to Meme and altcoins, which are prone to being manipulated or manipulated, stocks have higher stability and lower operability, especially in the US where prices are supported by real business, earnings, and expectations, which are easier to understand than air. Nvidia's rise is supported by at least AI computing power, data centers, GPU shipments, profit margins, and market expectations, while Tesla's rise is supported by at least delivery FSD、 Energy storage, Robotaxi, and Musk's expectations serve as support. Companies such as Apple, Microsoft, Meta, and Google all have at least real business and cash flow. Of course, these US stocks will also be overvalued, and there will also be foam, but they are not stories created out of thin air. Users may not really want to hold stocks for the long term, nor may they really want to be shareholders. What many people really want is to use cryptocurrency trading methods to trade US stock fluctuations. That is to say, traditional financial assets such as Nvidia, Tesla, Apple, Meta, SPY, and QQ can be transformed into contract assets that can be traded, long, short, leveraged, capitalized, and used for cross market arbitrage, just like BTC and ETH. 4A. Model of Stock Exchange Contracts Exchange stock contracts are easier to understand. Essentially, centralized exchanges provide stock price exposure, allowing users to open, close, long, short, and leverage positions in their exchange accounts. Ultimately, the risk control system, matching system, margin system, and clearing system of the exchange are responsible for execution. The advantages are a mature trading experience, easier concentration of liquidity, high matching efficiency, clear logic for balancing and risk control, and users do not need to manage wallets Gas、 Cross chain, authorization, and no need to face on chain contract risks on your own. Especially if the backend of the exchange itself can also connect real stocks, securities firms, market makers, and traditional market liquidity, then the pricing of stock contracts is more likely to be close to real US stock prices. Although the user is making a contract, the price is anchored to real market assets such as NVIDIA, Tesla, SPY, and QQ. For ordinary traders, this path is the simplest and most similar to trading BTC perpetual contracts now. But the problem with stock contracts on exchanges is also very obvious, that is, users are completely dependent on the platform. The margin is on the platform, the position is on the platform, the matching is on the platform, the fund rate rules are on the platform, the forced leveling rules are on the platform, and whether stable trading can be achieved during extreme market conditions is also on the platform. The core risks are platform dependence and centralized risk control. 4B. Model of On Chain Stock Contracts On chain stock contracts place stock price exposure on the chain, relying on smart contracts, oracle machines, on chain margin pools, on chain clearing mechanisms, and liquidity providers to complete transactions. Users can directly interact with the wallet and open positions on the chain. In the future, they can even connect their stock contract positions to on chain lending, profit strategies, structured products, and cross asset portfolios. This is the greatest imagination of on chain stock contracts. If contracts from NVIDIA, Tesla, SPY, and QQQ can all run on the chain, DeFi will no longer just revolve around BTC, ETH, stablecoins, and altcoins, but can also incorporate the prices of the world's most liquid traditional assets. For example, in the future, users can use stablecoins as margin, go long on Nvidia and short on Tesla on the chain, use US Treasury tokens as collateral, use BTC as hedging, and automatically manage their positions in a certain on chain strategy agreement. This combination ability is difficult for centralized exchange accounts to fully open up. But the issue of on chain stock contracts is also more complex. The first is the oracle risk. The stock itself is not on the chain, and the price must rely on the oracle. If the oracle is delayed, attacked, or has abnormal quotes, the on chain contract may experience erroneous forced leveling or price deviation. The second is liquidity risk. Centralized exchanges can centralize liquidity in order books, while on chain platforms rely on AMM, LP, market makers, or hybrid liquidity models. If liquidity is insufficient, there will be slippage in both opening and closing positions for users, and in extreme market conditions, it may even be impossible to level off. The third is counterparty risk. Behind the on chain stock contracts, there still needs to be someone providing liquidity and assuming payment obligations for user profits. This risk may come from LP pools, market makers, agreement insurance funds, or some kind of synthetic asset casting mechanism. If the market rises and falls unilaterally, who will compensate, how to compensate, and whether to compensate, all depend on the mechanism design. However, it seems that there are a lot of risks associated with on chain US stock contracts, but one reason can solve all these seemingly important problems, and this issue is the core of most on chain stock contract trading. There is no KYC or AML. This is a very, very crucial issue, for example, in some high tax countries or regions, contract transactions without KYC mean that all income does not need to be taxed, because it is simply an address on the chain, and it is impossible to determine who is behind it. Another benefit of not having KYC is the trade-off. I often see my friends say that whoever loses how much money on the chain seems to have unlimited bullets and can continue to lose money. Is it possible that this is not a loss, but rather a form of collusion, whose purpose is essentially money laundering. I won't say much about it. 5. Summary. The advantages of the exchange model are liquidity, price anchoring, and trading experience, which are suitable for ordinary users as well as traders who pursue stable transactions, low slippage, and high execution efficiency. The advantages of the on chain model are openness, composability, self custody, and almost permissionless trading, making it more suitable for traders familiar with DeFi, on chain arbitrage, portfolio strategies, and risk management. The former focuses on trading efficiency, while the latter emphasizes future strategic space and freedom.