Author: Max.s
For a long time, many natives of the crypto world were immersed in a grand narrative: Web3 would revolutionize Web2 by moving Nasdaq stocks onto the chain, replacing the NYSE’s matching engine with smart contracts, ultimately reshaping global finance with RWA.
Watching the constantly fluctuating K-line on the screen, we must remember this date: November 10, 2023. On this day, due to strong market expectations that the first crypto spot ETF would be approved, institutional funds heavily entered through compliant channels, causing CME’s open interest to surge and surpass Binance.
CME data on that day: Open interest reached approximately 111,100 BTC, with a nominal value of about $4.08 billion (about 24.7% of the total network holdings at the time).
Binance data: Open interest about 103,800 BTC, with a nominal value of around $3.8 billion.
We must face a brutal reality: this will be a one-sided absorption!
Look at the chart below
Process 1 in the chart represents the expansion of traditional finance (TradFi) into the crypto space, such as CME launching futures and BlackRock launching ETFs; Process 2 is the infiltration of crypto finance into traditional assets, like tokenization of US stocks and RWA (Real World Assets).
The market’s current answer is clear: Process 1 is unstoppable, while Process 2 is struggling. The core of this disparity isn’t technology, but the liquidity reduction caused by “compliance costs.”
Why can Wall Street giants easily penetrate the heartland of the crypto world, while we find it difficult to breach their fortresses?
Marginal cost in economics explains everything.
For CME, CBOE (Chicago Board Options Exchange), EUREX (European Exchange), or SGX (Singapore Exchange), listing Bitcoin derivatives has almost zero marginal cost.
These financial giants possess decades-old clearing licenses, highly mature risk control models, and dedicated lines directly connecting to top global hedge funds. For them, Bitcoin is just another ticker symbol after gold, oil, and soybeans. They don’t need to rewrite underlying code, hire compliance teams anew, or even re-educate customers. They only need to submit a filing to the CFTC (U.S. Commodity Futures Trading Commission), tweak some parameters, and a new, compliant market capable of handling hundreds of billions in liquidity is born.
In contrast, Process 2 faces an insurmountable barrier when crypto exchanges attempt to “tokenize US stocks”:
Remember FTX’s once-proud equity tokens? Not only were they a trigger for its downfall, but also seen as a regulatory sin. A native crypto platform wanting to legally allow users to buy Tesla shares with USDT must obtain securities broker licenses, clearing licenses, resolve cross-jurisdictional securities law conflicts, and implement extremely complex KYC/AML procedures. The compliance costs here are not linear but exponential.
For native crypto companies, this is a war that’s already over before it begins. Traditional finance is not only compliant itself but also the rule-makers.
Why is compliance cost so crucial? Because it directly determines safety, and safety sets the entry barrier for capital.
Retail investors in crypto often misunderstand the source of “liquidity.” True liquidity doesn’t come from a few thousand U.S. dollars held by retail traders but from pension funds, endowments, sovereign wealth funds, and large market makers.
These giants face extremely strict fiduciary duties. This explains why the approval of a Bitcoin spot ETF in 2024 will be a historic turning point.
Before ETFs, a traditional family office wanting to allocate to Bitcoin faced complex approval processes: who manages the private keys? What if the exchange collapses? How to conduct audits? ETFs and CME futures solve these problems perfectly: no need to manage private keys, no need to trust offshore exchanges, everything is done within a U.S. stock account.
CME’s Bitcoin futures open interest keeps hitting new highs. Behind this isn’t retail traders fighting 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 data centers than on AWS.
When CBOE plans to re-enter the crypto derivatives market, and SGX and EUREX start deploying compliant derivatives channels in Asia and Europe, a clear trend emerges: the pricing power of crypto assets is shifting from offshore, unregulated exchanges (like early BitMEX and some offshore CEXs) to regulated traditional financial exchanges.
Just as crude oil futures don’t require the owner to physically transport oil, future crypto finance won’t require investors to actually use decentralized wallets.
In this process, cryptocurrencies are stripped of their “currency” payment attribute, their “censorship resistance” ideology, and are refined into purely high-volatility financial assets. They are encapsulated into ETFs, packaged as futures contracts, and integrated into traditional 60/40 asset allocations.
The conclusion seems predetermined: Web3 finance (especially secondary market trading) will likely be integrated into Web2 finance, becoming a trading category within traditional finance.
This may upset crypto purists, but it’s precisely a sign of asset maturity.
The future landscape might look like this: the underlying blockchain technology (Web3) still handles asset creation and ownership verification, such as BTC mining. But in the vast financial infrastructure of trading, clearing, and derivatives, Web2 giants with low-cost compliance advantages will still dominate the main tables.
For investors, it’s crucial to see this clearly. Liquidity is where Alpha is. And the current liquidity is irreversibly flowing back to the suited crowd.
