The Power Game Behind Wall Street’s “Onchain” Route | #03 | by OKG Research | The Capital | Feb, 2025
By Jason Jiang, OKG Research
In February 2025, Ondo Chain disrupted the stability of Wall Street. This Layer 1 blockchain, designed specifically for institutional-grade RWA (Real World Assets) and backed by traditional asset management giants like BlackRock and Franklin Templeton, has a clear ambition: to create a “compliant yet open” hybrid architecture. This would allow institutional investors to safely migrate trillions of dollars in assets onto the blockchain while still benefiting from the liquidity of leading public chains like Ethereal.
Ondo Chain serves as a mirror reflecting the collective anxiety of traditional financial giants entering Web3 — how can they secure a foothold in the onchain frontier while navigating a complex regulatory landscape? Some have built high walls, others have ventured aggressively into uncharted territory, while some seek to bridge the gaps. As more financial giants enter, the divergence in technological approaches is no longer just a battle over code but a competition for the future of financial influence.
In the 19th century, early Wall Street financial transactions relied on manual processes and face-to-face interactions, with brokers and banks playing a crucial intermediary role. The 20th century saw the rise of electronic trading platforms and the internet, democratizing financial information, lowering barriers for retail investors, and reducing transaction costs. The fintech boom further improved front-end user experiences for investors.
These advancements were significant, but the fundamentals of traditional financial markets remained unchanged: centralized systems continued to dominate, data remained siloed in proprietary databases, and transaction processes still depended on intermediaries for coordination and settlement. Now, blockchain and tokenization are attempting to change this by making assets more accessible, transparent, and interoperable. These technologies offer the potential for real-time settlement, lower costs, and global accessibility while maintaining the integrity and trust that traditional systems have long provided.
However, as Web3 technology sweeps across the globe, traditional financial institutions are not converging on a single approach. Instead, they are diverging in their strategies. This divergence is shaped by the trade-off between regulatory compliance and liquidity — should institutions prioritize control and security, or embrace global market fluidity?
Initially, permissioned blockchains were the preferred choice for many financial institutions venturing into Web3. When JPMorgan announced in 2024 that its Onyx platform had settled $300 billion in transactions annually, many realized that this century-old institution — once openly skeptical of cryptocurrencies — had quietly built a blockchain-based moat. Onyx operates as a meticulously designed “digital fortress”: its nodes are controlled by select institutions, counterparty information is concealed, and each cross-border payment carries an embedded compliance label.
The downsides of such a closed ecosystem are evident. A banker involved in the JPM Coin project admitted, “Our tokenized U.S. Treasury bonds can only circulate among partner institutions — liquidity feels like an antique locked in a glass case.” Similarly, BNY Mellon’s onchain custody services, despite managing over $10 billion in tokenized assets, remain trapped within walled gardens, unable to interact with Ethereum’s DeFi protocols. This reflects the inertia of traditional finance: using control to mitigate risk, but at the cost of openness.
As tokenization gains traction and the battle for onchain liquidity intensifies, asset management giants like BlackRock and Goldman Sachs have opted for a more aggressive strategy — shifting tokenization initiatives toward public blockchains. Ethereum has emerged as the primary choice for institutional tokenization. BlackRock led the charge by launching the BUIDL tokenized fund on Ethereum. This fund not only enables automated settlement via smart contracts but also supports onchain staking, lending, and secondary trading. This marked the first deep integration between traditional finance and Web3 finance, making public blockchains a new institutional focus.
The adoption of any new technology often follows a pattern of declining costs. Just as DeepSeek revolutionized AI by significantly reducing operational expenses, Layer 2 solutions are doing the same for blockchain. Following Ethereum’s Cancun upgrade, transaction costs on Layer 2 networks like OP Mainnet, Base, Arbitrum, and Starknet have plummeted by over 97% in the past six months. Lower costs improve user experience and drive greater adoption of Layer 2 solutions. According to OKG Research, over 90% of Ethereum-related transactions now occur on Layer 2 networks.
Lower costs are also reducing the barriers to blockchain adoption, accelerating the migration of applications and services to Layer 2 networks. Payment giants like Visa and Stripe are leveraging Layer 2 to launch “payment blitzes.” Visa’s stablecoin payment channels, powered by Polygon and Arbitrum’s high-throughput networks, have slashed cross-border transaction costs to one-tenth of traditional methods, processing over 500,000 transactions daily. Stripe has built crypto on/off-ramp solutions on Layer 2, ensuring users experience seamless integration without even realizing they are using blockchain technology. As Stripe’s Web3 lead put it, “We don’t care if a chain is decentralized — we only care whether 1 million merchants can easily accept crypto.”
This reveals the pragmatic mindset of traditional institutions: while public chains pose security risks and permissioned blockchains face interoperability barriers, Layer 2 offers a seemingly optimal compromise — delivering blockchain’s efficiency and technological benefits at a fraction of the cost, while remaining within a controllable framework. The maturation of modular rollup infrastructures like OP Stack has further simplified Layer 2 deployment, making “one-click chain deployment” a reality. Unlike traditional blockchains, these Layer 2 solutions do not require native tokens for financial incentives, making them more compliant than public chains.
Many traditional institutions are using Layer 2 to establish their Web3 presence. Coinbase’s Layer 2 chain, Base, has gained significant traction amid the meme coin and AI agent hype, positioning itself as a crucial hub for tokenized asset issuance. Sony, Deutsche Bank, and other financial and technology firms are also accelerating their Layer 2 initiatives to secure a foothold in the tokenization revolution. For institutions looking to leverage Ethereum’s ecosystem for RWA issuance, launching their own Layer 2 may be the smartest move.
The race to bring Wall Street onchain is no longer just a contest of technological superiority. JPMorgan’s private chain, BlackRock’s public chain ETF, Visa’s Layer 2 payment experiments, and Ondo Chain’s hybrid model — each approach is an attempt to define the future distribution of financial power.
But history has its ironies. While traditional institutions replicate old-world order onchain, DeFi protocols are quietly eating into their market share. Tesla stock tokens on Uniswap now see over $100 million in daily trading volume, and Aave’s RWA lending pools are attracting increasing institutional deposits — sometimes in defiance of regulations. It may not be long before this silent competition turns into an open battle: whose chain will define the next generation of Wall Street?
