After speaking with frontline practitioners, I've found that on-chain brokerages are not a good business

Original by Odaily Planet Daily (@OdailyChina)

Author: Wenser (@wenser 2010 )

Pre-IPO stock trading and tokenized stock asset trading are increasingly becoming major sectors of the crypto market, with numerous CEXs and on-chain perpetual platforms entering the fray. This has driven 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, and have become some of the most lucrative and influential players in the industry.

Given that the above is largely based on personal observation, I also wanted to confirm the practical details of actual business operations—both the wins and the pain points—with true industry practitioners. Odaily Planet Daily conducted interviews and exchanges with StableStock founder Zixi and other industry representatives on related topics. Here are some key insights shared upfront:

• A deep understanding of the business logic, the application and maintenance of compliance licenses, and earning user trust throughout the entire product design process are all crucial hurdles for entry.
• There is still much room to develop business systems aimed at "making money together with users," rather than merely "earning fees from users."
• From the perspective of profit capture and self-sustainability, crypto exchanges overwhelmingly outperform brokers.
• Considering compliance, volatility, and liquidity risks, on-chain brokerage is not an easy business to run.

Clarifying Industry Information Gaps: License Application is the First Step to Entry

When it comes to on-chain brokers, many people might mistakenly assume this is a role that simply "packages securities and stock assets onto the blockchain." The core idea is actually quite simple, but the real business system involves far more than the four lightweight words "asset packaging."

When asked about industry barriers to entry, StableStock founder Zixi also shared his first-hand experiences from the front lines.

He said: "Back in 2021, while studying at Nanyang Technological University in Singapore, I first conceived the idea of 'using stablecoins to buy stocks.' After several years of accumulation, once external timing and personal resources were relatively mature, we officially founded StableStock in 2025. This is not a traditional 'on-chain broker' or 'stablecoin broker,' but rather a novel trading platform that integrates diversified products including 'off-chain asset packaging and settlement (with securities-side clearing handled by licensed partners) + on-chain tokenized asset trading + fee arbitrage-style wealth management.' It's a hybrid form positioned between traditional financial services and cryptocurrency exchanges."

"Specifically regarding business barriers, first there are the different business logics. Packaging off-chain stocks into on-chain stocks, versus settling on-chain stablecoin assets off-chain to purchase stocks—these are two distinct paths. It was only after a series of business experiments that we moved from pure on-chain stock tokenization to our current 'semi on-chain assets + semi off-chain settlement' TradFi-like operating model, which allows us to balance both efficiency and asset types. This is also why our business positioning is closer to traditional financial services, oriented toward serving users' long-term asset allocation, rather than relying on high-frequency trading or liquidations as our primary revenue source."

"Second is the compliance licensing aspect. Generally speaking, compliance qualifications related to stock tokenization and on-chain stock trading fall into two broad categories: One is securities licenses approved by mainstream market regulators like the US (e.g., SEC—U.S. Securities and Exchange Commission, FINRA—Financial Industry Regulatory Authority), such as SEC-registered Broker-Dealer status (Form BD) and FINRA-approved membership. These cover a broader scope of business. The other is registration-type qualifications from regional regulators, such as financial services registrations and bank deposit/withdrawal qualifications in places like the US, Australia, and New Zealand.

We have currently completed US MSB (Money Services Business) registration and New Zealand FSP (Financial Service Provider) registration. It should be noted that these two are registration-type qualifications covering money services and financial services segments, and are not equivalent to securities trading licenses—this is something we have always been transparent about with users and partners. On the securities qualification front, we are also continuously advancing our compliance license strategy for higher-tier authorization in mainstream markets like the US, and we will promptly update the public once there is definitive progress.

Notably, compliance costs include not only license application fees but also human resource expenses such as external lawyers and internal compliance teams. The former is typically a one-time payment, usually ranging from hundreds of thousands to millions of USD; the latter is more of a recurring expense, requiring monthly costs that typically range from tens of thousands to hundreds of thousands of USD or more."

An unnamed industry representative told Odaily Planet Daily that, in a sense, underlying assets are the prerequisite and foundation for whether the spot business of stock tokenization platforms (including US stocks) — including on-chain brokers — can succeed; derivatives businesses have relatively looser requirements in this regard. Beyond that, whether this track can continue to thrive depends on each platform's business model and self-sustaining capabilities. On this front, different development paths are gradually emerging in the market.

Two Paths for On-Chain and Off-Chain Securities Trading Platforms: Earning Users' Money VS Earning Money Together with Users

Today, what lies before many trading platforms and on-chain broker platforms is not just early-stage market education and user growth, but more importantly, where the revenue for sustained platform operations comes from. Different platforms have given different answers to this question. Broadly, they can be divided into two categories:

First is the "trading fee" model, which is more mainstream among current CEXs and on-chain perpetual platforms. Similar to how CEXs have historically depended on fees from users opening positions and trading, the more users and the more trades, the greater the accumulated fees. This model is relatively straightforward.

Second is the "value-added services" path chosen by platforms like StableStock, whose revenue sources include trading fees, conversion fees, interest and liquidation fees from leveraged trading, and wealth management-related fees. Other platforms in the market are also drawing on traditional brokers' revenue models, planning to charge corresponding service fees by connecting upstream assets, liquidity, and user trading demand—such as margin interest, idle cash spreads, securities lending, derivatives, membership subscriptions, wealth management, credit cards, and payments. To a certain extent, this resembles the business models of traditional brokers like Robinhood and Futu.

The line between the two is not always clear.

Notably, StableStock founder Zixi revealed that their recent business focus is on two areas: First, continuously enriching trading products, planning to cover high-quality assets in more major capital markets in phases—such as Korean and Japanese stocks—with specific listing scopes and timelines gradually advancing based on compliance requirements and user demand; Second, their team is conducting final internal testing and evaluation of the aforementioned "fee arbitrage wealth management product," which will first be opened to institutional clients once mature, then gradually expanded to eligible individual users. Essentially, this product leverages the mature fee-differential mechanisms between different platforms in the industry, combined with StableStock's proprietary trading strategies, to achieve more efficient capital utilization under strict control of leverage trading scale and ratios, ultimately creating a win-win for both platform and users.

For current on-chain broker platforms, steady and methodical progress is crucial. Foundational capabilities such as trading, deposits and withdrawals, asset supply, clearing and settlement, custody, and user rights remain the current business priorities, while future development focuses on whether platforms can continuously attract user capital retention and meet users' asset management and financial needs.

Synthesizing the above information, in the short term, there exists a somewhat "casino vs. guest" relationship between trading platforms and users, with the former surviving on the latter's trading fees. But in the long run, trading platforms and users still need to jointly seek quality assets and share in asset dividends to achieve mutual wealth growth.

CEX, On-Chain Perp VS On-Chain Brokers, Trading Platforms: In the Industry's Early Stage, the Latter's Advantage Lies in Being Closer to Users and Real Assets

Although security tokenized trading is still in the early stages of the industry, a certain role differentiation has already emerged among players: CEXs like Binance, Bitget, Gate, and Bybit are transition players, pivoting from crypto exchanges toward RWA assets and US stock trading platforms; on-chain perpetual DEX platforms like Hyperliquid and Aster, as well as ecosystem projects like trade.xyz, are opportunistic players that have gained significant liquidity and attention due to the flexibility and efficiency of derivatives, engaging in mutual price discovery with traditional financial markets and competing for pricing power over quality assets; trading platforms like StableStock are more like "native RWA asset players," expanding on one hand through underlying asset coverage and trading categories, and on the other hand seeking growth breakthroughs through wealth management yields, trading strategies, and value-added services.

In StableStock founder Zixi's view, Hyperliquid's diluted fees are lower than Binance's, and the fee collection cycles (Odaily Planet Daily note: Hyperliquid charges fees hourly, while Binance charges every 8 hours at a higher rate) and user structures of the two are vastly different, so their liquidity and profitability also differ to some extent—but there is no fundamental difference in competitive advantage. Of course, from a profitability perspective, exchanges dominate, while traditional brokerage businesses have extremely thin margins. His exact words were: "Brokerage profit margins are very thin. You have to scale up trading volume and grow AUM (Assets Under Management) to make money. But exchanges are different—users' trades, whether buying, selling, or facing liquidations, all contribute to profitability. The business logic of the two is completely different."

When asked which type of platform he is more optimistic about for future development, StableStock founder Zixi pointed out that he relatively favors crypto exchanges' trading model and long-term viability. The brokerage model carries higher compliance costs and demands greater capital scale and fundraising capability. This assumes, of course, that the crypto industry still exists in five years and that new users continue to flow into the industry steadily.

Of course, at the current stage, many CEXs clearly hold advantages in product updates, asset packaging, profitability, and brand recognition. One industry representative noted: "For distribution entry points and user accumulation purposes, CeDeFi may still be the market mainstream going forward. Just like the highly homogeneous protocols during the DeFi Summer era, today's on-chain perps and on-chain trading platforms essentially have no significant differentiation advantage—it's really 'whoever controls the entry point and has more users will laugh last.' This is why many startups choose to focus their efforts on the front-end application layer."

Finally, considering the risks and compliance requirements of KYC and CRS 2.0 tax regulations, the anonymity, liquidity depth, and 24/7 availability of on-chain trading platforms still hold strong appeal for certain users, which means such platforms have their dedicated following.

Risk Pressures on On-Chain Brokers and Trading Platforms: Compliance, Volatility, and Liquidity

Finally, Odaily Planet Daily synthesizes the interview guests' insights to briefly discuss the main risks and pressure points facing on-chain brokers and trading platforms:

First, and most importantly, is the compliance factor. According to industry representatives, spot-type on-chain brokers dealing with underlying assets all need to secure compliance licenses to avoid extreme regulatory risks. StableStock founder Zixi also stated candidly that during the entrepreneurial process, compliance is arguably the "number one challenge"—it involves not just the application and long-term maintenance of various licenses, but is often accompanied by the human resource costs of internal and external compliance teams and long-term collaboration.

Second is market volatility, which is easily overlooked by most people. Taking the recent sharp corrections in Korean and US stocks as an example, consecutive declines and sustained turbulence have caused asset losses for users on many trading platforms, and platforms' capital accumulation has inevitably been affected. From a global capital market perspective, the recent stock market correction is extremely rare, comparable in severity to the violent fluctuations during the 2015-2016 period or even the 2008 financial crisis. Facing such a high-risk, high-volatility market, all trading platforms are exploring more avenues for user growth, asset expansion, and profit channels.

Third is liquidity, the lifeblood of all markets and all platforms. Whether it's upstream resources providing underlying asset support and liquidity, or after-hours market maker quoting mechanisms and price discovery mechanisms, sufficient liquidity depth is essential. According to industry representatives, over the next 3-5 years, various traditional equity assets will see a gradual reconstruction of on-chain trading scenarios, with 24/7 trading becoming industry consensus. This will place higher demands on liquidity and price feed mechanisms. To avoid abnormal price fluctuations during low-liquidity periods, market maker incentive mechanisms during non-trading hours are critical.

Conclusion: On-Chain Brokerage Is Not an Easy Business

Previously, I was highly optimistic about the "on-chain brokerage" business, believing there was great potential in localized capital markets (such as Southeast Asia, Europe, Australia), on-chain derivatives trading platforms, and pre-market asset trading platforms. But after exchanging views with several senior industry veterans, I have to retract that blind optimism.

In the current market environment, on-chain brokers—and even the broader category of stock tokenization trading platforms and on-chain derivatives trading platforms—can hardly be called a good business. Their profit structures are relatively singular, profitability is relatively poor, and they face fierce competition from traditional brokers and crypto exchanges. They face numerous pressures in terms of short-term wealth-creation capability, business models, and user growth, along with certain obstacles related to regulatory agencies and license applications in major global capital markets. As the aforementioned industry representative noted, if a startup team wants to enter this track, it's more suitable to start with perpetual contract-type assets like trade.xyz—but this still requires solving the liquidity incentive problem.

However, looking at industry trends, on-chain brokerage—or rather, 24/7 trading of on-chain assets—is indeed the direction of the future. Traditional brokers like Futu and Robinhood will likely not build fully integrated end-to-end trading systems themselves. The "self-licensed as entry point + connecting external on-chain liquidity" aggregation model may well become the future mainstream. In the long run, existing platforms with ample liquidity and mature account systems will also be the choice of more users.

Existing platforms, leveraging their first-mover advantages and liquidity accumulation, may well be able to carve out a path in this red ocean. At the end of the day, everyone is competing for user markets and capital liquidity—both of which will only gather around product experience, asset categories, and wealth-creation effects. On-chain brokers may have thin profit margins, but their business revenue can still be diversified and substantial.