Transformingaccess to money worldwide through the application of on-chain technology
In the rapidly evolving digital landscape, the onchain economy is making waves as a decentralized, programmable, and increasingly efficient system that is transforming global commerce. This new economic reality is powered by blockchain technology, replacing traditional intermediaries in financial operations and offering faster, cheaper, and more accessible financial services.
Infrastructure and Control
Unlike traditional finance, which relies on legacy institutions such as transfer agents, clearing firms, and centralized exchanges, onchain systems allow fintech firms to launch vertically integrated blockchain networks. This vertical integration enables companies to capture trading spreads, custody fees, and infrastructure rents previously held by legacy institutions.
Asset Representation and Liquidity
Onchain finance enables the tokenization of assets, where equity or other financial instruments can be listed and traded permissionlessly and easily via APIs on blockchain networks. This allows for near-instant trading of tokenized assets, a stark contrast to traditional private equity investments that often require waiting years for liquidity events.
Transparency and Security
Blockchain provides a tamper-proof, auditable, and real-time ledger of transactions and ownership, enhancing trust and reducing disputes through smart contracts that automatically enforce permissions. In contrast, traditional systems rely on private records, quarterly reporting, and manual processes that can be slow, error-prone, and less transparent.
Regulatory Environment
The regulatory landscape for onchain finance is complex and evolving, combining securities laws with blockchain-specific rules. However, recent regulatory shifts are easing institutional adoption by clarifying policies and reducing constraints.
Payment and Settlement Speed
Onchain systems offer near-instant, real-time settlement of payments across borders and time zones, even on weekends and holidays, through tokenized deposits and stablecoins. Traditional finance is limited by slower settlement cycles and operational hours.
Ownership and Economic Incentives
Onchain finance redistributes economic rents by enabling those controlling blockchain infrastructure to monetize fees based on usage, disrupting traditional high fixed-fee models with more fair, usage-based pricing. This aligns incentives directly with platform usage and liquidity provision.
The onchain economy is revolutionizing how we understand and manage value, rethinking concepts like ownership and financial participation. However, it also faces barriers such as scalability, technological fragmentation, and still undefined regulatory frameworks.
In regions like Latin America, millions of people have found a practical alternative to the traditional banking system in the digital economy. The potential to transform how we manage value is undeniable, making understanding its fundamentals a way to stay at the forefront of a change promising to redefine the global economic future.
References: 1. Drew Anderson, associate product manager at VanEck, published a report titled "What Is the Onchain Economy?" 2. Investopedia. (2021). On-chain analysis. [online] Available at: https://www.investopedia.com/terms/o/onchainanalysis.asp 3. Cointelegraph. (2021). What is the on-chain economy? [online] Available at: https://cointelegraph.com/news/what-is-the-on-chain-economy 4. Coindesk. (2021). On-chain analysis. [online] Available at: https://www.coindesk.com/info/on-chain-analysis 5. Chainalysis. (2021). What is on-chain analysis? [online] Available at: https://blog.chainalysis.com/reports/what-is-on-chain-analysis/
- The vertical integration of blockchain networks by fintech firms in the onchain economy promises to capture trading spreads, custody fees, and infrastructure rents that were traditionally held by legacy institutions in finance.
- The use of blockchain technology in the onchain economy allows for the near-instant trading of tokenized assets, a significant improvement over the wait times for liquidity events typically associated with traditional private equity investments.
