Onchain finance is coming to Wall Street—and ignoring it is no longer an option

For almost a decade, the crypto industry has promised to reinvent global finance and bring millions “onchain.” Despite generating some truly innovative products, the industry has yet to attain those lofty goals.

But now something different has arrived: A new category of onchain products built to compete with traditional finance on its own terms.

This new development has been reflected in public discussions: Financial regulators recently have begun to use the term “onchain finance” in public hearings and speeches; software developers are doing the same to describe what they are building; and even Wall Street itself has started to employ it.

But what precisely are they talking about? The term onchain finance describes the pairing of the most powerful element of blockchain technology—public networks open to everyone on identical terms—with a feature familiar to every traditional financial institution: a reputable company that customers trust to stand behind the product.

It means that traditional firms that may have kept their distance from crypto have no choice but to pay attention now.

Finance without permission Onchain finance shares certain characteristics with decentralized finance (“DeFi”), which describes software applications built on public blockchains that allow users to engage in financial activity without relying on known third parties.

DeFi’s origins trace back to Bitcoin, a public network that lets anyone store and transfer value under rules that no company or government can change.

DeFi extends that idea to the rest of finance: anyone with an internet connection can engage in complex financial transactions, anywhere and anytime, without asking for permission.

In DeFi, financial activities are defined entirely by code that operates automatically and on identical terms for everyone, that can be audited in a way that lets users understand how their funds move when they conduct a transaction.

Those who use DeFi, meanwhile, exercise self-custody so they do not have to rely on a third party to access their funds.

Finally, DeFi systems are built in a Lego-like fashion—they are open and composable, and anyone can build new applications on top of them.

The upshot is that DeFi architects leveraged the benefits of public blockchains, including transparency and resilience, in order to create financial services tools with new features that don’t exist in conventional markets.

Now the technology is beginning to spread further.

Trust in onchain finance While DeFi optimizes for permissionless and open transactions, onchain finance optimizes for a product that competes with traditional finance on its own terms.