BitMart Founder Introduces “LayerFi”: A New Framework for the Future of On-Chain Finance

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by Gregory Pudovsky

Published: October 14, 2025 at 4:24 am Updated: October 14, 2025 at 4:24 am

To improve your local-language experience, sometimes we employ an auto-translation plugin. Please note auto-translation may not be accurate, so read original article for precise information.

In the aftermath of one of the largest liquidation events in crypto history, BitMart Founder Sheldon Xia has released a new thought piece introducing the concept of LayerFi (Layered Finance) — a framework that seeks to redefine how on-chain financial systems evolve toward maturity. Written in response to the October 11 market turbulence, the essay examines how volatility reveals the resilience and structure of blockchain-based finance, offering a deeper reflection on efficiency, trust, and system design.

Opening: Let’s Start with a Simple Question

On October 11, 2025, the cryptocurrency market experienced the largest liquidation event in history. If you’re following this space, you might ask: Does such volatility mean the blockchain experiment has failed? The answer is definitely no. But I’d like you to think from a different angle: in this extreme stress test, which systems collapsed? Which survived? Which were questioned? More importantly, which systems will emerge stronger?

Let me first introduce my background. I’m the founder of BitMart, and I entered the blockchain industry in 2013. Over the past nearly 13 years, our platform has processed trillions of dollars in transactions and served over 12 million users. I’ve witnessed the complete transformation of this industry from speculative frenzy to infrastructure building. Today, I want to share a core viewpoint: LayerFi is not a stopgap measure but the inevitable choice for on-chain finance to mature.

To understand this viewpoint, we first need to ask a more fundamental question: what problem is the financial system actually solving?

One: Finance is Essentially a Balancing Game Between Efficiency and Trust

Let’s first establish a framework for thinking. Imagine you want to lend money to a stranger. You face two core problems: First, how do you trust that they’ll pay you back? Second, can this lending process be fast and cheap enough to make it worthwhile for both parties? These are the two fundamental propositions that financial systems have been addressing for three hundred years: trust and efficiency.

Looking Back: How Financial Systems Establish Trust

Let’s quickly review history. In 1717, Britain established the gold standard, using gold—a scarce physical asset—to guarantee the value of currency. This was humanity’s first use of something “tangible and visible” to solve the trust problem. You can imagine it this way: I give you a piece of paper currency, but behind that paper is real gold as backing, which you can exchange at any time.

By 1944, the Bretton Woods system made the trust mechanism more complex. The dollar was pegged to gold, and other countries’ currencies were pegged to the dollar. It was like building a trust pyramid: gold at the bottom, the dollar in the middle, and other currencies at the top. But this system collapsed in 1971 when Nixon announced the dollar would no longer be tied to gold. From then on, trust began shifting from “physical assets” to “institutional promises” and “market mechanisms.”

Meanwhile, efficiency improvements were also underway. In the 1960s, computerized clearing systems emerged, transforming financial transactions from manual matching to electronic processing. Think about it—in the past, completing a transaction required traders shouting and gesticulating on the exchange floor; now it just takes a mouse click. This is a classic example of how technology improves efficiency.

Here’s an important insight: every major transformation in the financial system is essentially about rebalancing the relationship between efficiency and trust.

The Dilemma of Traditional Finance: Trust Costs Eroding Efficiency, Rising Friction Coefficients

Now, let’s look at the current traditional financial system. Its core logic is: establishing trust through intermediary institutions. Banks, exchanges, clearinghouses, and custodial institutions—these intermediaries act as “trust nodes,” providing guarantees to both parties in a transaction.

This system worked well in the industrial era. But in today’s digital, globalized world, problems are emerging. Let me give you a concrete example:

Suppose you’re in China and want to transfer $10,000 to a friend in the United States. This money needs to go through multiple layers of institutions: your opening bank, correspondent bank, receiving bank, and so on. Each layer charges fees and conducts compliance reviews. The entire process might take 1 to 3 business days, and fees could reach tens or even hundreds of dollars. More importantly, you can’t see in real-time where your money is—you can only “trust” that these intermediary institutions will handle it properly.

Global financial institutions spend hundreds of billions of dollars annually on compliance, accounting for about 15% of large institutions’ operating costs. What does this mean? It means that every time you use financial services, a significant portion of the cost goes toward “proving this system is trustworthy”—this is their friction coefficient.

Think about it: what would happen if there were a technology that could reduce trust costs while maintaining or even improving efficiency?

Blockchain’s Breakthrough: Replacing Intermediaries with Algorithms

This is where blockchain technology comes in. In 2008, Satoshi Nakamoto published the Bitcoin whitepaper, proposing a revolutionary idea: we can use “distributed ledger + proof of work” to establish trust without relying on intermediary institutions.

Let me explain this concept with an analogy. Traditional finance is like a centralized library where all ledgers are kept by a librarian, and you have to trust the librarian won’t tamper with records. Blockchain is like copying this ledger thousands of times and distributing it to everyone. Whenever a new transaction occurs, everyone’s ledger updates simultaneously. If someone wants to tamper with records, they’d need to modify thousands of ledgers simultaneously—technically, almost impossible.

Between 2013-2015, Ethereum’s emergence further advanced this revolution. Vitalik Buterin introduced the concept of “smart contracts.” This means financial rules can be written as code and executed automatically. Using the same example: when you want to transfer money to your American friend, smart contracts can automatically check your balance, execute the transfer, and update both accounts. The entire process requires no intermediaries, takes just a few minutes, and might cost only a few dollars in fees.

By October 2025, DeFi (Decentralized Finance) will have reached a Total Value Locked of $160 billion, with decentralized exchanges reaching peak daily trading volumes of $80 billion. These numbers prove: replacing intermediaries with algorithms is not just theory but a reality being practiced at scale.

But Pure Decentralization Encountered New Problems

Here, I need to help you understand a critical turning point. While DeFi achieved trustlessness technologically, it exposed a new contradiction: experience and trust seem mutually exclusive.

For example, Pure DeFi requires users to manage their own wallets like MetaMask, handling private keys and seed phrases. It’s like giving you a safe key but telling you: if you lose this key or enter the wrong password, all your assets will be permanently lost, and no one can help you recover them. For non-technical users, the barrier is too high.

On the other hand, pure centralized exchanges are convenient to use, but you need to completely trust the platform won’t misappropriate your assets. History has seen multiple instances of centralized exchanges collapsing or absconding, resulting in heavy user losses.

This brings us to today’s protagonist: LayerFi. It tries to answer a question: can we maintain decentralized trust while providing a centralized user experience?

Two: Understanding LayerFi’s Innovative Architecture

Now, let’s dive deep into what LayerFi really is. Many people simply think LayerFi is a hybrid of CeFi (Centralized Finance) and DeFi (Decentralized Finance), a compromise solution. But this understanding is rather superficial.

LayerFi’s Core Design Philosophy: Layered Architecture

Let me first use a familiar analogy to open your thinking. Imagine you’re using an e-commerce platform like Amazon. The front-end interface you see is carefully designed—clean, easy to use, allowing you to easily browse products, place orders, and pay. But in the back end, there are extremely complex inventory management systems, logistics scheduling systems, and payment clearing systems running. You don’t need to see these systems or understand their technical details.

LayerFi adopts exactly this approach: the user-facing front end pursues ultimate experience, while the invisible back end anchors decentralized trust. But this isn’t simply “front-end and back-end separation”—it’s a deeper architectural innovation.

Let me use another analogy to help you understand the essence of this innovation. Imagine a modern skyscraper. The foundation is buried deep underground, bearing the weight of the entire building. It must be extremely solid, might take years to build, but once completed is unbreakable. The main structure needs to be strong enough to support various functions, but doesn’t need to be as over-designed as the foundation. And the observation restaurant at the top is elegant and refined, providing an ultimate user experience.

No one questions why the foundation and restaurant use different materials and designs—because the problems they solve are fundamentally different. LayerFi applies this engineering wisdom to financial architecture.

Detailed Explanation of LayerFi’s Three-Layer Architecture

Now, let me break down this architecture specifically. LayerFi divides the entire financial system into three layers, each with clear responsibilities and the most suitable technical solutions.

Layer One: Settlement Layer—The Foundation of Trust

This is the foundation of the entire system, responsible for final asset settlement and security guarantees. At this layer, our core objectives are decentralization and absolute security, not speed. Like a bank vault, we’d rather it be slower and more complex, but it must be absolutely safe.

Technically, this layer is usually the Ethereum mainnet or other mature Layer 1 blockchains. All critical asset custody and ownership verification is completed at this layer. Your assets are locked here through smart contracts that are completely transparent, verifiable, and immutable. The platform has no authority to touch these assets; only you can transfer them through cryptographic signatures.

The design philosophy of this layer is: it’s okay to be slow, acceptable to be expensive, but it must be unbreakable. Just as you wouldn’t complain about a bank vault door being too thick or slow to open, because that’s exactly what guarantees security.

Layer Two: Execution Layer—The Engine of Efficiency

This is the middle layer of the system, responsible for handling large volumes of daily transactions and computations. At this layer, we pursue high performance and low cost. It’s like the main structure of a building, needing to be strong enough to support various functions, but not requiring the over-design of the foundation.

Technically, this layer typically adopts Layer 2 scaling solutions, such as Optimistic Rollup or ZK-Rollup. The core idea of these technologies is: process massive transactions efficiently off-chain, then submit only the final results in batches to the settlement layer. Like various departments in a company that process large volumes of business daily but only need to periodically report summarized results to headquarters.

Let me give you a concrete example. Suppose you’re high-frequency trading on a LayerFi platform, possibly making dozens of transactions per second. If every transaction had to be confirmed on the Ethereum mainnet, you’d be ruined by high Gas fees (possibly tens of dollars per transaction) and slow confirmation speeds (possibly several minutes). But through the execution layer, these transactions complete instantly on Layer 2, costing only cents, with millisecond-level speed. Then the system periodically packages batch transaction results and submits them to the settlement layer, ensuring final security.

This design gives you both speed and cost advantages while maintaining final decentralized security guarantees. This isn’t compromise—it’s achieving optimal solutions at different layers.

Layer Three: Application Layer—The Interface of Experience

This is the layer users directly interact with, responsible for providing friendly interfaces and rich functionality. At this layer, we pursue the ultimate user experience. Like the restaurant on top of a skyscraper, it must be elegant, comfortable, and easy to use.

At this layer, platforms can adopt centralized approaches to optimize experience because this layer doesn’t involve asset control.

You can register with a phone number or email without understanding what a private key is. You can get real-time customer service help, just like using traditional financial apps. The system automatically handles complex technical details: Gas fee calculation and advance payment, address format verification, transaction path optimization, real-time market analysis, and risk alerts. All this is to make your experience as smooth as possible.

But here’s a critically important design principle: although this layer is centralized, it has no authority to touch your assets. Like restaurant waiters who can take your order, pour water, and introduce dishes, but can’t take money from your wallet. Your assets always remain locked in Layer One smart contracts, and only you can transfer them through cryptographic signatures.

What platforms can do at this layer is only help you construct transaction instructions, provide interfaces, and optimize experience. But the ultimate authority to execute these instructions always remains in your hands.

The Beauty of Layered Design: Breaking the Impossible Triangle

Now let me help you understand why this layered architecture is a breakthrough innovation rather than simple compromise.

Traditional blockchain systems face a famous “impossible triangle”: decentralization, security, and performance cannot all be optimized simultaneously. If you choose extreme decentralization and security (like Bitcoin), you sacrifice performance; if you choose high performance (like some new public chains), you compromise on decentralization.

LayerFi breaks this dilemma through layered design. The key insight is: different functions have different requirements for these three dimensions.

Asset custody must be decentralized and secure but can be slower—so we put it on the settlement layer. Daily transactions need high performance and low cost but can moderately reduce decentralization—so we put them on the execution layer while ensuring final security through periodic result submission to the settlement layer. User interface needs ultimate experience and can be completely centralized—so we put it on the application layer but never give it asset control.

This is like successful logistics systems in reality. For ordinary packages, use standard processes pursuing efficiency; for valuables, activate special protection procedures; and for final core settlement and liability determination, have strict institutional guarantees. Each layer optimizes for specific needs, achieving overall balance of cost, efficiency, and security.

October 11 Event’s Real-World Validation: Architectural Advantages in Practice

Now let’s return to the opening question: why did some systems collapse during the extreme market conditions on October 11, while platforms with certain architectures remained stable?

Traditional centralized exchanges easily experience systemic risk contagion under concentrated clearing pressure. Like dominoes, one link fails and the entire system is affected. Moreover, in extreme situations, platforms might adopt opaque risk control measures for their own interests, even maliciously liquidating positions. Users completely depend on platform “goodwill,” but in life-or-death moments, platform “goodwill” is often unreliable.

Pure decentralized DeFi, while free from platform malfeasance risk, faces situations where users cannot respond timely to market changes due to on-chain execution delays and need for autonomous risk management. When Gas fees spike to hundreds of dollars during extreme markets, ordinary users simply cannot operate. When liquidation prices trigger, users might be unable to add margin timely due to technical issues, resulting in magnified losses.

LayerFi’s layered architecture demonstrates unique advantages in such situations:

Centralized front-ends can respond quickly, maintaining liquidity and service continuity, helping users adjust positions timely. Systems can provide real-time risk warnings, automatically adjust Gas fee strategies, and optimize transaction paths. These features require powerful centralized server support, but they truly can save the day at critical moments.

Decentralized back-ends ensure liquidation process transparency and fairness through smart contracts, avoiding human intervention. You can verify in real-time that platforms execute liquidations according to established rules rather than operating in black boxes. Even if platform front-end servers crash, your assets remain safely locked on-chain, executing according to rules, and you can interact directly with smart contracts through other means to retrieve assets.

This is like a ship sailing in a storm: the captain (centralized front-end) needs to respond flexibly, adjust course timely manner, and direct sailors to handle various emergencies; but the ship’s structure (decentralized back-end) must be solid and reliable, unable to change basic physical rules due to the captain’s decisions. The captain can decide which route to take, but cannot change hull materials or suddenly turn an iron ship into a paper ship.

Think about it: is this an architectural compromise? No, this is systematic innovation achieving optimal solutions at different layers. It gives you both professional service support and retains ultimate asset control.

Three: Why LayerFi Will Dominate the Next Five Years

Now you might ask: since pure DeFi is theoretically more perfect, why will LayerFi dominate the future? Let me explain from three dimensions.

First Dimension: User Barriers Determine Market Boundaries

Let’s first do a thought experiment. Imagine on-chain finance needs to grow from its current 25 million monthly active users to 150 million monthly active users. What does this require?

The answer is simple: lowering usage barriers. The vast majority of people aren’t technical experts. They don’t want to understand private keys, seed phrases, or Gas fees. They just want simple, easy-to-use financial services. Like most people using PayPal or WeChat Pay, they don’t need to understand the payment clearing technology behind it; they just need to scan.

Pure DeFi’s usage barriers doom it to serving only niche groups. Once seed phrases are lost, assets are permanently unrecoverable. Numerous interactions harbor uncontrollable security risks. These are unacceptable risks for ordinary users. Manually setting Gas fees—any carelessness leads to transaction failure or paying excessive fees. One wrong character in an address sends assets to the wrong destination, never to be recovered.

LayerFi solves this problem through “hiding back-end complexity, simplifying front-end interaction.” Users enjoy a Web2-level experience while the underlying security is guaranteed by Web3 technology. This is a prerequisite for mass adoption.

Important insight: technology’s success lies not in how advanced it is, but in how many people it can serve.

Second Dimension: Institutional Capital Entry Logic

Now let’s look from the institutional investors’ perspective. Traditional financial institutions manage tens of trillions of dollars in assets. They’re interested in on-chain finance but have two core concerns:

First, unclear liability entities. Pure DeFi’s anonymous governance structure means that if problems occur, no responsible party can be found. This conflicts with basic financial regulatory requirements. Imagine—if a pension fund wants to invest funds into a completely anonymous governed protocol, would regulators agree? Would the board agree?

Second, asset custody security cannot be verified. Institutions need auditable, traceable custody solutions, requiring third-party audits and clear compliance processes.

LayerFi solves these problems. The front-end has clear operating entities that can bear legal responsibility. Although the back-end is decentralized, all transaction records are on-chain, completely transparent, and traceable. Asset custody is executed by smart contracts while also having regular third-party auditing institutions.

In 2025, on-chain RWA (Real World Assets) scale grew from $8.6 billion to $30 billion, a 249% increase. Most projects adopt LayerFi architecture. Why? Because traditional financial giants like BlackRock need exactly this kind of “compliance-monitorable + technically trustworthy” hybrid architecture.

If the RWA scale is to grow to $5 trillion over the next five years, LayerFi will be the essential pathway for institutional capital entry.

Third Dimension: Regulatory Adaptability Determines Survival Space

Finally, let’s talk about regulation. This might be the most easily underestimated yet ultimately decisive factor.

Global regulatory agencies’ attitudes toward crypto assets are shifting from “observation” to “regulation.” Their core demand is: achieving risk control and responsibility traceability without stifling innovation.

Pure DeFi struggles to implement basic regulatory requirements like KYC (Know Your Customer) and AML (Anti-Money Laundering) due to a lack of governance entities. Regulatory agencies facing completely anonymous protocols cannot implement effective oversight.

Pure CeFi, though regulatable, carries single-point risk due to excessive centralization. Platforms might misappropriate client assets or manipulate markets, requiring continuous strong regulation.

LayerFi achieves effective compatibility with regulation through a layered architecture. The front-end executes KYC, AML, and other compliance requirements, allowing regulators to clearly know who’s using the platform. Back-end on-chain records are completely transparent, allowing regulators to track fund flows in real-time, preventing money laundering and terrorism financing risks.

Let me give you a historical analogy: PayPal’s emergence in 1998. It didn’t try to overthrow the banking system but acted as a bridge between traditional banking and internet payments, promoting mass adoption of electronic payments within a compliance framework.

LayerFi plays a similar role: it’s the bridge between decentralized ideals and regulatory reality, a viable path for on-chain finance toward mainstream adoption.

Four: The Four Cornerstones Supporting LayerFi Ecosystem

Now, let’s understand in depth how the LayerFi ecosystem operates. I like to use building analogies: if modular architecture is the skeleton, then RWA, composability, security systems, and compliance frameworks are the four pillars supporting this building.

First Pillar: RWA—Value Anchor Connecting Virtual and Real

Let me first ask you a question: why was early DeFi considered a “castle in the air”? Because it mainly relied on crypto-native assets like BTC and ETH. These assets are highly volatile and almost disconnected from the real economy.

Imagine: when global stock markets crash, Bitcoin might surge; when the Federal Reserve raises rates, Ethereum might plummet. This disconnection from the traditional economy makes DeFi difficult to become a true financial infrastructure.

RWA (Real World Assets) introduction changed this situation. Through blockchain technology, we can tokenize traditional assets like government bonds, stocks, notes, real estate, money market funds, and commodities, allowing them to circulate and trade on-chain.

Let me illustrate with a concrete example. BlackRock’s BUIDL fund invests in tokenized U.S. Treasury bonds. This means: an ordinary investor in Singapore can purchase tokenized shares of U.S. Treasury bonds with a few thousand dollars, enjoying the stable yields of U.S. Treasuries. In the traditional financial system, this requires complex cross-border processes and high thresholds.

In early 2024, the on-chain RWA scale was only $8.6 billion. By September 2025, this number broke through $30 billion, growing 249%. Why so fast? Because regulation is gradually becoming clearer, technology is maturing, and most importantly, traditional financial institutions are starting to take this field seriously.

RWA not only injects stable value support into on-chain finance; more importantly, it builds bridges between on-chain finance and the real economy.

Second Pillar: Composability—Financial World’s Lego Blocks

Now, let me help you understand a more abstract but more important concept: composability. This is the core gene distinguishing on-chain finance from traditional finance.

In traditional finance, if you want to combine different financial products, you need to deal with multiple institutions, sign multiple contracts,and  go through multiple systems. For example, if you want to do an “arbitrage strategy”: borrow on Platform A, buy assets on Platform B, sell on Platform C, then repay on Platform A. This process might take days, involve multiple accounts, and be operationally complex with high risk.

In on-chain finance, all this can be completed in one transaction. Different protocols, assets, and functions are like Lego blocks that can be freely combined. This is called “composability.”

Let me explain composability at three levels:

Morphological Composability: This is the most basic. Like USB interfaces being standardized, any USB device can plug into any USB port. On-chain, all tokens follow the same standards (like ERC-20), and all protocols provide standardized interfaces. Thus, USDC can trade on Uniswap and lend on Aave without any adaptation.

Syntactic Composability: Like function calls in programming languages. You can combine Uniswap’s trading function, Aave’s lending function, and Compound’s interest rate mechanism to create entirely new financial products. Developers can combine existing modules like building blocks.

Atomic Composability: This is the most advanced. Multiple operations can be “all or nothing” in one transaction. Either all steps succeed or all roll back. This avoids risk exposure in intermediate links. Like dominoes—either all fall or none fall.

Now, AI technology introduction has taken composability to a new stage. AI agents can monitor markets in real-time and automatically combine optimal protocols and strategies. For example, when market volatility intensifies, AI can automatically transfer your assets from high-risk leveraged trading to stablecoin savings; when arbitrage opportunities appear, AI can automatically invoke flash loans and DEX modules to complete arbitrage.

Composability evolves on-chain finance from “programmable finance” to “self-driving finance”—an innovation dimension that traditional finance cannot imagine.

Third Pillar: Security System—Technical Foundation of Trust

Let’s honestly face a problem: security risk is one of on-chain finance’s biggest challenges. In the first half of 2025, the DeFi industry lost hundreds of millions of dollars due to various security issues. If even basic security isn’t guaranteed, even the best architecture is empty talk.

How does LayerFi address this challenge? The answer is: establish multi-level security defense systems.

Proactive Prevention: All new projects before launch undergo security audits and ratings by authoritative or market-recognized security agencies. Like buildings requiring fire safety inspections before use. Audit content includes code logic vulnerabilities, permission control defects, asset security risks, etc. For core protocols, formal verification is also needed, mathematically proving code logic correctness.

For RWA projects, besides technical audits, off-chain asset due diligence is also required. For example, tokenized bonds need verification of issuer credit ratings, authenticity of money market funds, legality of stock and note custodial institutions, and property rights and valuation reports for real estate.

Active Monitoring: Platforms monitor on-chain transaction behavior in real-time. If abnormal fund flows are detected—such as large transfers, frequent small transfers (money laundering characteristics)—systems automatically trigger alerts. When necessary, freezing authority can be added to freeze accounts or suspend transactions, coordinating with regulatory examination requirements.

Meanwhile, some platforms have introduced on-chain insurance mechanisms. Users can purchase insurance; if losses occur due to smart contract vulnerabilities, insurance provides compensation.

Post-Event Handling: If security incidents truly occur, platforms have clear compensation mechanisms. Compensate affected users through revenue pools or insurance funds. This addresses the “bear your own losses” deficiency of pure DeFi models.

This system’s core philosophy is: we cannot guarantee problems will never occur, but we can prevent as much as possible before problems occur, respond timely manner when they occur, and handle them properly afterward.

Fourth Pillar: Compliance Framework—Institutional Guarantee for Long-Term Development

Finally, let’s talk about compliance. Many think compliance constrains innovation, but I want to offer a different perspective: compliance is the admission ticket for long-term development.

Imagine opening a restaurant. You could choose not to get a business license or accept health inspections, saving lots of costs and trouble. But what’s the result? You might be shut down anytime, customers won’t dare come, and you can never grow big. Conversely, if you proactively comply, though upfront costs are higher, you gain legitimacy for long-term operations, customers trust you, and you can grow big and strong.

What is LayerFi’s compliance framework?

User End: Execute moderate KYC and AML requirements. Users need to provide identity proof when registering; large transactions need additional verification. This isn’t to restrict users but to prevent platforms from being used for money laundering, terrorism, child pornography, etc.

Platform End: Actively report platform financial status, risk control measures, user fund management, etc. Suggest adopting registration systems rather than establishing strict, complex, cumbersome regulatory systems.

Asset End: RWA tokenization products must be issued through licensed institutions. Native assets can be accepted; future data assets will be discussed separately. For example, tokenized U.S. Treasuries must be issued and custodied by financial institutions holding relevant licenses.

Some platforms have even established comprehensive compliance reporting systems. Users can view platform asset proofs in real-time; regulators can review transaction records anytime. All asset custody information is on-chain, completely transparent.

Compliance isn’t a constraint but the necessary path for on-chain finance toward mainstream acceptance and broader recognition.

Five: Looking Toward 2030’s Financial Landscape

Now, let’s look toward the future. Based on current trends and technological evolution, we can reasonably predict what will happen in the next five years.

Numbers Speak: Rise of Trillion-Level Markets

First, let’s look at some key data. Grand View Research predicts the global DeFi market size will grow from $26.94 billion in 2025 to $231.19 billion in 2030, with a compound annual growth rate of 53.7%.

But this is only calculated by revenue. If we look at the actual controlled asset scale, predictions will be more aggressive. I believe by 2030, DeFi Total Value Locked will grow from the current $160 billion to $2 trillion. More importantly, the RWA scale will explode from $30 billion to $5 trillion, with LayerFi platforms contributing over 80% of the proportion.

User numbers will also see qualitative leaps. From the current 25 million monthly active users to 150 million monthly active users. This penetration rate is equivalent to the mobile payments’ early-stage level in 2015.

This means: on-chain finance will transform from professionals’ tools to ordinary people’s daily financial services.

Three Stages of Technological Evolution

Let me help you understand how this growth will be realized. I divide the next five years into three stages:

Stage One (2025-2026): Infrastructure Breakthrough Period

This stage’s core task is solidifying foundations. High-performance financial public chains Layer 1 + Layer 2 technologies will become mainstream, with over 70% of transactions completing on Layer 2 networks, and gas fees dropping to cents. Imagine—currently, a transaction on Ethereum mainnet might cost tens of dollars in Gas fees; in the future, just cents. Or on high-performance public chains like Sol, Hyper, sacrificing some decentralization in exchange for low-cost Gas fees.

Meanwhile, account abstraction technology will revolutionize user experience. You no longer need to memorize seed phrases—you can log into wallets using phone numbers, email, or social accounts, or NFTs, identity tokens. If you forget passwords, you can recover through “social recovery” mechanisms, as simple as recovering WeChat passwords.

This stage’s goal is: to make on-chain finance as simple as using PayPal or WeChat Pay.

Stage Two (2027-2028): Application Explosion Period

When infrastructure matures, the application layer will explode. RWA asset categories will expand significantly, including not just government bonds but core urban commercial real estate, SME credit, etc. The tokenized government bond scale is expected to break through $1 trillion.

Traditional financial institutions will participate deeply. Imagine: in your bank app, besides purchasing traditional wealth management products, you can also buy on-chain wealth products with one click; in your brokerage app, besides trading stocks, you can trade tokenized securities.

More interesting is AI+LayerFi fusion. AI agents will become your “intelligent financial advisors,” automatically configuring assets based on your risk preferences. When markets fluctuate, AI automatically rebalances for you; when arbitrage opportunities appear, AI automatically executes strategies.

This stage’s characteristic is: on-chain finance and traditional finance boundaries blur, and users don’t even realize they’re using blockchain technology.

Stage Three (2029-2030): Ecosystem Maturity Period

At this stage, globally unified technical standards and regulatory frameworks will form. Modules developed by different countries and platforms can seamlessly interface. Regulatory systems converge; cross-border business no longer requires repeated compliance.

On-chain finance will cover complex structured financial products. Tokenized bonds and real estate can directly interact with yield modules, insurance modules, and credit modules, forming product complexity comparable to traditional finance.

This stage’s hallmark is: on-chain finance becomes part of the global financial infrastructure, coexisting with traditional financial systems.

Where Are the Different Participants’ Opportunities

For Ordinary Users: You don’t need to be a technical expert. Just choose a trustworthy LayerFi platform, and you can participate in investments previously only available to institutions. For example, you can purchase tokenized U.S. Treasuries, stocks, or money market funds with a few hundred USDC or USDT, obtaining relatively high-quality assets and returns; you can participate in overseas real estate investment without personally going abroad.

Meanwhile, you can earn token rewards through platform governance participation, sharing in platform growth dividends.

For Traditional Financial Institutions: LayerFi is your best digital transformation tool. Short-term, you can migrate some back-office processes on-chain, drastically reducing costs; mid-term, launch online-offline fusion products, enhancing competitiveness; long-term, build your own LayerFi modules, expanding global markets.

Importantly, you don’t need to disrupt yourselves—just treat LayerFi as a business expansion tool.

For Regulatory Agencies: Suggest implementing risk-stratified regulation with different regulatory intensities for different risk levels. Promote regulatory sandboxes, letting innovative projects test in controlled environments. Drive international standard unification to avoid regulatory arbitrage. Prioritize registration systems.

Conclusion: Blockchain and finance will evolve together in a symbiotic relationship rather than in opposition.

Let’s return to the initial question: What is LayerFi? Is it a compromise?

I hope you now understand: LayerFi isn’t a compromise but a balance achieved at higher dimensions. It isn’t simply splitting the difference between centralization and decentralization, but achieving optimal solutions at different levels.

When 2030 arrives and DeFi TVL breaks through $2 trillion with RWA scale reaching $5 trillion, we’ll discover: LayerFi hasn’t disrupted traditional finance but established a symbiotic ecosystem.

Imagine this scenario: African farmers can directly participate in global capital markets through phones; New York investors can easily invest in Asian real estate projects; ordinary people can enjoy financial services previously only available to institutions; idle capital can quickly flow globally to where it’s most needed.

In this scenario, traditional finance’s compliance and user trust perfectly integrate with on-chain finance’s transparency and efficiency. Financial services become as flexible as building blocks; financial systems become as open as the internet.

October 11’s market panic will eventually subside, but LayerFi’s driven transformation won’t stop. Over the next 3 to 5 years, projects deeply cultivating LayerFi and focusing on RWA and user experience will become industry leaders. Ordinary participants only need to choose compliant platforms to share in this transformation’s dividends.

Finance’s future isn’t choosing between efficiency and trust but their synergistic win-win; not opposition between centralization and decentralization but their complementary advantages.

LayerFi is precisely the key bridge to this future. And now is the best time to begin this journey.

About The Author

Gregory, a digital nomad hailing from Poland, is not only a financial analyst but also a valuable contributor to various online magazines. With a wealth of experience in the financial industry, his insights and expertise have earned him recognition in numerous publications. Utilising his spare time effectively, Gregory is currently dedicated to writing a book about cryptocurrency and blockchain.

More articles

Gregory Pudovsky

Gregory Pudovsky

Gregory, a digital nomad hailing from Poland, is not only a financial analyst but also a valuable contributor to various online magazines. With a wealth of experience in the financial industry, his insights and expertise have earned him recognition in numerous publications. Utilising his spare time effectively, Gregory is currently dedicated to writing a book about cryptocurrency and blockchain.

More articles