Putting TradFi Onchain: Perps as the Primitive
I'll start with a few contrarian claims:
What traders want isn't "tokenized" stocks/RWAs, but to long and short them (on leverage) and to pocket the underlying price change
Orderbook perps are not a competitive liquidity solution for these assets
Oracle-based perps are the only scalable architecture that will solve the current gap in the market
On "Tokenization"
Everyone on CT yaps about tokenization, but what traders (not institutions) actually want is something different. It's fairly straightforward:
The ability to trade, long/short, with leverage, TSLA, SPX, QQQ, NVDA, Gold, Oil and all the other stuff they'd find on a retail broker alongside their crypto positions
To not have to pay ridiculous fees or wait days for settlement to do this
If you're trading size in crypto, you're tracking macro — whether you'd like to or not: CPI prints, FOMC, geopolitics. So much of the volatility happens around these events. It makes sense to want to express market views on these assets alongside your crypto positions.
The solution is simple (conceptually): build onchain perps for these assets. Avoid the wait times, complexity, and fees involved in periodically rebalancing across on- and off-chain by being able to trade all of this from a wallet. At least for a consumer use case, the answer isn't a tokenized asset that will sit in your wallet on some new specialized chain you have to bridge to.
Issuers would like you to think that's useful — minting and redemption fees on tokenized assets make for a great business, if you can get people to buy them — but perps are the simpler, more flexible option for a majority of traders by a wide margin.
I'm not a tokenization expert. I don't know precisely what the banks want or have strong views on bond issuance, T+2 settlement times, or programmable redemptions. But I have talked to a lot of traders and I think have a decent sense for what they want.
Eating TradFi's Lunch
For TradFi perps to scale, they will need a path to serving not only existing onchain traders, but currently off-chain traders drawn to a more transparent, flexible solution to their existing centralized brokers. TradFi retail platforms like eToro, Plus500 and others are usually black boxes for their users.
In addition to taking full custody of user assets, these platforms can:
See liquidity dry up without warning (traders don't know exactly how large a position they can open on an asset; trades will revert if the broker risk model is triggered)
Deposits and withdrawals can take days and in many cases require manual confirmation via communication with a trader's account manager on WhatsApp (e.g. sending screenshots of an attempted deposit — yes, even in 2025 this remains standard on most smaller platforms)
Accounts can be arbitrarily closed for opaque terms of service violations.
These are textbook examples of the sorts of problems a blockchain-based product would solve.
However, in order to be competitive in this broader market, any onchain platform will need to:
Charge competitive fees: While an onchain platform can charge a premium for the benefits it offers and thus capture value — look at the fee difference between on- and off-chain perps platforms — that premium cannot be too large. Traditional retail FX brokers often charge fees as low as 1-2bps on the highest liquidity assets, far lower than taker fees on even the cheapest onchain perps platforms today. Out of control funding rates would also kill web2-native demand; while traders might be happy to pay 100% APR on a crypto asset that moves 20% in a day, holding costs on leveraged positions in the traditional markets are a fraction of this (even volatile stocks are subject only to holding fees marginally higher than the interest rate).
Charge structurally similar fees: Even more importantly, fees need to be presented in a form factor that is legible to traditional market traders. Most FX brokers compete on (i) spreads (ii) commission (iii) overnight "swap fees" (holding costs). A variable native orderbook spread is not legible to these users; they expect a small, clearly stated spread on top of the underlying market (e.g. ECN for FX) raw spread.
Leverage the liquidity of the underlying markets: The existing markets for these assets are extremely liquid. What you don't want to do as a platform is attempt to compete in a losing game (bootstrapping your own liquidity for the trillion dollar NVDA market and offering terrible execution by comparison). What you do want to do is leverage that liquidity by quoting the raw spread from that underlying market.
Allow for leverage levels competitive with the traditional market: Existing onchain orderbook perps are hamstrung by an inability to offer high levels of leverage commensurate with what many offchain retail FX platforms offer (e.g. 500:1 on currencies, 100:1 on indices, etc) due to inefficiencies in onchain orderbook liquidation engines. There's a reason these web2 platforms actually aren't structured as orderbooks: most of them are what's called a "market maker" or "principal" liquidity model, the liquidity feature that allows them to offer these leverage levels.
Orderbook Perps Are Not The Answer
For context, here's what happens under the hood at most of these brokers:
The broker acts as the principal counterparty to client trades
They build their own real-time pricing based on the underlying market raw spread, almost always with their own markup on top
They internalize (or "book") client trades on their own balance sheet
They manage risk through periodic hedging in the underlying market
If any of this sounds familiar, it's because it is actually quite similar to how oracle-based pool perpetuals work, just with the counterparty externalized to a public liquidity pool, rather than a broker's balance sheet.
Thus, while my claim on orderbook perps not being a competitive liquidity solution might sound contrarian to a crypto audience, it actually isn't a contrarian claim at all if you're familiar with the dynamics of the traditional retail FX broker market. There's a reason they all operate under this model.
None of them are creating their own market, they're all fetching and quoting prices from the underlying market: the only option in a space with intense competition for the tightest spreads. A scalable TradFi perps solution will need to be structured similarly, to offer not only the leverage these users expect but also the execution and spreads familiar to existing off-chain retail traders of these markets — who, make no mistake, will need to be brought onchain if our space is going to win.
[Note: I use the word "perps" liberally here to refer to any instrument with a consumer use case that enables leveraged long/short position exposure on assets with a continuous fee paid to keep the position open. I actually don't think standard orderbook perps are the right instrument here, as I explain above.]
How To Win
A winning onchain RWA product — for stonks, currencies, metals, rates, and really anything you'd want to long/short — will:
Be able to service the demand from crypto-native traders for fully onchain, trader-friendly exposure to these assets (long/short, variety, leverage)
Compete in the traditional market for market share through competitive and structurally similar fees (low spreads, commission, swap fees) — specifically, through a mechanism that pulls underlying market spreads directly onchain, rather than creating a new market with its own spread dynamics, which will be definitionally worse than whatever the multi-trillion dollar, liquid global FX or stock market has to offer
Democratize the benefits of onchain for everyone: (i) full transparency (no black boxes), (ii) an inability to unfairly "tip the scales" in favor of the broker through arbitrary account suspensions and trade modifications (e.g. getting TPed at last night's price from before stock earnings announcements) to capture outsize value, and (iii) instant deposits, withdrawals, and signups
We've built all of @ostiumlabs' architecture around these design principles.
If you have capital onchain and want to trade other assets, we've built a product for you. (If you're an FX trader and sick of black-box platforms, we have a product for you, too.)
TL;DR
Traders don't want "tokenization"; they want leverage on TradFi assets alongside crypto
Building new orderbook perp liquidity on non-crypto assets onchain is a dead-end and cannot match TradFi execution or leverage, necessary to scale beyond today's onchain audience
Oracle-based pools are the only architecture that can actually compete with centralized retail brokers
Winners will leverage existing market liquidity while adding crypto's transparency
@ostiumlabs is building this — for crypto natives wanting TradFi exposure and vice versa
Originally published on X. Mar 2025.