Talking with Industry Practitioners, I Realized That On-Chain Brokerage Is Not a Good Business

Original | Odaily Planet Daily ( @OdailyChina )

Author | Wenser ( @wenser2010 )

Pre-IPO trading and tokenized stock asset trading are gradually becoming important segments of the crypto market, with many CEXs and on-chain perpetual platforms entering the fray. This has led to the rise of on-chain stock asset trading platforms like trade.xyz, which combine the roles of traditional stock exchanges and brokers, serving as trading gateways and liquidity hubs, making them some of the most attractive entities in terms of capital-raising ability and industry influence.

Given that the above observations are largely personal, I wanted to confirm the actual operational details and challenges with real industry practitioners. Odaily Planet Daily interviewed industry representatives, including Zixi, the founder of StableStock, on related topics, and I will present some key insights at the beginning:

• A deep understanding of business logic, the application and maintenance of compliance licenses, and gaining user trust throughout the product design process are all essential hurdles to entry.
• To "make money together with users," rather than just "earning user fees," there are many business systems worth developing.
• From the perspective of profit capture and self-sustaining development, crypto exchanges outperform brokers.
• Considering compliance, volatility, and liquidity risks, on-chain brokerage is not an easy business to operate.

Industry Information Gap Clarification: License Application as the First Step to Entry

When it comes to on-chain brokers, many may mistakenly believe that this role is simply about "packaging securities and stock assets on-chain." In reality, what needs to be done is quite simple, but the actual business system involves far more than just the four light words "asset packaging."

When asked about industry entry barriers, Zixi, the founder of StableStock, shared his firsthand business experiences.

He stated, "In 2021, while studying at Nanyang Technological University in Singapore, I already had the initial idea of 'using stablecoins to buy stocks.' After several years of development, and with external timing and personal resources maturing, we officially founded StableStock in 2025. This is not a traditional 'on-chain broker' or 'stablecoin broker,' but a new trading platform that integrates 'off-chain asset packaging and settlement (with securities clearing done by licensed partners) + on-chain tokenized asset trading + fee arbitrage financial products,' acting as a bridge between traditional financial services and cryptocurrency exchanges."

"Specifically regarding business barriers, first, there are different business logics. The asset packaging from off-chain stocks to on-chain stocks, and the settlement and purchase of on-chain stablecoin assets off-chain, are two different paths. After a series of business attempts, we determined our current 'semi-on-chain assets + semi-off-chain settlement' model, which allows us to balance efficiency and asset types. This is why our business positioning is closer to traditional financial services, focusing on long-term asset allocation for users rather than relying on high-frequency trading or liquidation as the main source of income."

"Secondly, regarding compliance licenses. In simple terms, the compliance qualifications for tokenizing stocks and on-chain stock trading can be roughly divided into two categories: One is securities licenses approved by authoritative regulatory bodies in mainstream markets like the U.S. (such as SEC - U.S. Securities and Exchange Commission, FINRA - Financial Industry Regulatory Authority), like SEC-registered Broker-Dealer qualifications (Form BD) and FINRA membership qualifications issued after review, which cover a broader business scope; the other is registration qualifications from regional regulatory bodies, such as financial service registrations and banking deposit and withdrawal qualifications in the U.S., Australia, New Zealand, etc.

Currently, we have completed the U.S. MSB (Money Services Business) registration and New Zealand FSP (Financial Service Provider) registration. It should be noted that these two categories belong to registration qualifications, covering currency services and financial service segments, and do not equate to securities trading licenses—this is something we always explain honestly to users and partners. We are also continuously advancing the layout of higher-level compliance licenses in mainstream markets like the U.S., and will promptly communicate any significant progress externally.

It is worth mentioning that compliance costs include not only the fees related to license applications but also human resource costs for external lawyers and internal compliance teams. The former is usually a one-time payment, typically ranging from tens of thousands to hundreds of thousands of dollars; the latter incurs ongoing monthly costs, usually ranging from tens of thousands to hundreds of thousands of dollars.

An unnamed industry representative revealed to Odaily Planet Daily that, in a sense, the underlying assets are the premise and foundation for the establishment of many tokenized stock platforms (including U.S. stocks), including on-chain brokers; the requirements for derivatives businesses in this regard are relatively relaxed. Moreover, whether this sector can continue to thrive depends on the business models and revenue-generating capabilities of various platforms. In this regard, different development paths have gradually emerged in the market.

Two Major Routes for On-Chain and Off-Chain Securities Trading Platforms: Earning User Fees vs. Making Money Together with Users

Today, the challenges facing many trading platforms and on-chain brokerage platforms are not only market education and user growth in the early stages of the industry, but more importantly, where the revenue profits for sustained platform operations come from. In this regard, different platforms have provided different answers, which can be broadly divided into two types:

The first is the more mainstream "fee" model adopted by current CEXs and on-chain perpetual platforms. Similar to how previous CEXs heavily relied on user orders and transaction-generated fee profits, the more users and transactions, the more substantial the accumulated fees, making this model relatively straightforward.

The second is the "value-added service" route chosen by platforms like StableStock, where revenue sources include trading fees, exchange fees, interest on leveraged trading and settlement fees, and related financial service fees. Other platforms in the market have also borrowed revenue models from traditional brokers, planning to charge corresponding service fees by connecting upstream assets, liquidity, and user trading demands, such as financing interest, idle cash spreads, securities lending, derivatives, membership subscriptions, wealth management, credit cards, and payment services, somewhat similar to the business models of traditional brokers like Robinhood and Futu.

The boundaries between the two are not clear.

It is worth noting that, according to Zixi, the founder of StableStock, their recent business focus is on two aspects: on one hand, continuously enriching the variety of trading products, planning to gradually cover more quality assets from mainstream capital markets, such as Korean stocks and Japanese stocks, with the specific launch scope and pace to be gradually advanced and announced based on compliance requirements and user needs in each market; on the other hand, their team is conducting final internal testing and evaluation of the aforementioned "fee arbitrage financial products," which will first be opened to institutional clients before gradually expanding to compliant individual users. This product essentially adopts a relatively mature fee spread mechanism between different platforms in the industry, combined with StableStock's proprietary trading strategies, to achieve more efficient capital utilization while strictly controlling the scale and ratio of leveraged trading, ultimately realizing a win-win situation for both the platform and users.

For current on-chain brokerage platforms, steady progress is crucial. Basic capabilities such as trading, deposits and withdrawals, asset supply, clearing and settlement, custody, and user rights are still the current business focus, while future development will depend on whether they can continuously attract user funds and meet users' asset management and financial needs.

Based on the above information, in the short term, there exists a certain degree of "casino vs. customer" relationship model between trading platforms and users, where the former relies on the latter's trading fees for survival; but in the long term, trading platforms and users still need to jointly seek quality assets and share asset dividends, thereby achieving a two-way win in wealth.

CEX, On-Chain Perpetual vs. On-Chain Brokers and Trading Platforms: In the Early Stages of the Industry, the Latter Has the Advantage of Being Closer to Users and Real Assets

Although tokenized securities trading is still in the early stages of the industry, there has already been a certain degree of role differentiation among players: CEXs like Binance, Bitget, Gate, and Bybit are transformation players, focusing on transitioning from crypto exchanges to RWA assets and U.S. stock trading platforms; on-chain perpetual DEX platforms like Hyperliquid and Aster, as well as ecological projects like trade.xyz, are emerging players that have gained significant liquidity and attention due to the flexibility and efficiency of derivatives, engaging in price discovery with traditional financial markets and competing for quality asset pricing power; trading platforms like StableStock are more like "native RWA asset players," expanding in terms of underlying asset coverage and trading categories, while also seeking growth breakthroughs through financial returns, trading strategies, and value-added services.

In Zixi's view, the diluted fees of Hyperliquid are lower than those of Binance, and the fee collection cycles of the two differ significantly (Odaily Planet Daily note: Hyperliquid charges fees every hour, while Binance charges fees every 8 hours at a higher rate), leading to differences in liquidity and profitability, but there is no fundamental difference in competitive advantages. Of course, from the perspective of profitability, exchanges dominate, while the profits of traditional brokerage businesses are very thin. His exact words were: "Brokerage profits are very thin; you have to scale up trading volumes and AUM (Assets Under Management) to make money; but exchanges are different; user trading, whether buying, selling, or liquidating, can all contribute to profits, so the business logic of the two is completely different."

When asked which type of platform he is more optimistic about for future development, Zixi pointed out that he is relatively more optimistic about the trading forms and future survival capabilities of crypto exchanges, while the brokerage model has higher compliance costs and requires greater capital volume and financing capabilities. The premise is that, five years from now, the crypto industry still exists, and the entire industry continues to attract a steady stream of new users.

Of course, at this stage, many CEXs have obvious advantages in product updates, asset packaging, profitability, and brand recognition. **An industry representative pointed out: "Due to considerations of distribution channels and user accumulation, CeDefi may still be the future market mainstream. Just like the highly homogeneous protocols during the DeFi Summer, today's on-chain perpetual and trading platforms essentially do not have significant differentiation advantages; rather, 'whoever controls the entry, who has more users, will ultimately succeed.' This is also why many startups choose to focus on the front-end application layer."

Finally, considering the risks and compliance requirements related to KYC and CRS 2.0 taxation, the anonymity, liquidity depth, and all-time availability of on-chain trading platforms still hold strong appeal for certain users, indicating that such platforms have their dedicated followers.

Risks Faced by On-Chain Brokers and Trading Platforms: Compliance, Volatility, and Liquidity

In conclusion, Odaily Planet Daily summarizes the main risks and pressures currently faced by on-chain brokers and trading platforms based on the insights shared by interview guests:

First, of course, the most important factor is compliance. According to industry representatives, on-chain brokers dealing with underlying assets need to establish compliance licenses to avoid extreme regulatory risks. Zixi, the founder of StableStock, also stated that compliance is the "biggest challenge" in the entrepreneurial process, which not only involves applying for and maintaining various licenses but often also incurs human resource costs for internal and external compliance teams and long-term collaborations.

Second, there is market volatility, which is often easily overlooked by many. Taking the recent significant corrections in Korean and U.S. stocks as examples, consecutive declines and ongoing fluctuations have led to asset losses for many trading platform users, and the scale of platform capital accumulation has inevitably been affected. From a global capital market perspective, the recent stock market corrections are extremely rare, comparable to the severe fluctuations during the 2015-2016 period and even the 2008 economic crisis. In the face of such high-risk, high-volatility markets, all trading platforms are exploring more user growth, asset expansion, and profit channels for development.

Third, liquidity is essential for all markets and platforms. Whether it is the upstream resources providing underlying asset support and liquidity support, or the post-market maker quoting mechanism and price discovery mechanism, sufficient liquidity depth is required. According to industry representatives, in the next 3-5 years, various traditional equity assets will gradually undergo reconstruction in on-chain trading scenarios, and all-time trading will become an industry consensus, which will raise higher requirements for liquidity and pricing mechanisms. To avoid abnormal price fluctuations during low liquidity periods, the incentive mechanisms for market makers during non-trading hours are crucial.

Conclusion: On-Chain Brokerage Is Not a Good Business

Previously, I was highly optimistic about the business of "on-chain brokerage," believing there was great potential in localized capital markets (such as Southeast Asia, Europe, Australia, etc.), on-chain derivatives trading platforms, and pre-market asset trading platforms. However, after discussions with several industry veterans, I had to retract this blind optimism.

Given the current market environment, on-chain brokerage and, broadly speaking, tokenized stock trading platforms and on-chain derivatives trading platforms are hard to call a good business, as their profit structures are relatively singular, profitability is relatively poor, and they face fierce competition from traditional brokers and crypto exchanges. In terms of short-term wealth creation ability, business models, and user growth, they are under significant pressure, including certain obstacles related to global major capital market regulatory bodies and license applications. As mentioned by industry representatives, if startup teams want to enter this field, it is more suitable to start with perpetual contract assets like trade.xyz, but this also requires addressing liquidity incentive issues.

However, from an industry trend perspective, on-chain brokerage or on-chain asset trading at all times is indeed an inevitable trend. Traditional brokers like Futu and Robinhood are unlikely to independently build a full-chain trading system; a model of "self-licensed entry + connecting external on-chain liquidity" may become mainstream in the future. In the long run, existing platforms with sufficient liquidity and mature account systems will also be the choice of more users.

Existing platforms, based on their first-mover advantage and liquidity accumulation, may still carve out a path in a red ocean. Ultimately, what everyone is competing for is still the user market and capital liquidity, both of which will only cluster around product experience, asset categories, and wealth creation effects. On-chain brokerage may have thin profits, but business revenue can still be diverse and rich.

This content is provided for general informational purposes only and doesn't constitute financial, investment, legal, or tax advice. Any events, rewards, online promotions, or related information mentioned herein should not be considered a recommendation, solicitation, or invitation to purchase, sell, trade, or otherwise deal in any crypto assets. Crypto assets are highly volatile and may result in loss. The availability of WEEX services, products, and related events may vary by region. You are responsible for ensuring that your participation is in accordance with applicable local laws and regulations.