Nasdaq Tokenized Trading: Build Your Own Chain or Choose the Ethereum Ecosystem?

Recently, the Nasdaq Stock Exchange officially submitted an application to the U.S. Securities and Exchange Commission, requesting permission to trade stocks, ETFs, and other assets in a tokenized form on the exchange.

If this application is approved, Nasdaq will need a token trading platform to implement this functionality. Since Nasdaq currently does not have such a token trading platform, a heated debate has emerged online:

One side believes that Nasdaq will most likely build this trading platform on Ethereum or a Layer 2 solution of Ethereum.

The other side has expressed considerable emotion regarding this "aspiration," arguing that these Ethereum maximalists are being overly presumptuous and self-righteous.

In my view, Nasdaq may not necessarily adopt Ethereum or a Layer 2 solution; it is entirely possible for it to build its own Layer 1 blockchain to support its ecosystem.

This is similar to how many leading projects are continuously building their own Layer 1s.

Vitalik once summarized the blockchain trilemma: decentralization, security, and scalability. This means that a blockchain cannot simultaneously possess all three elements; at most, it can only have two at the same time.

In real-world cases, the most common combinations of these three elements are two:

1. Maintaining decentralization and security while sacrificing scalability;
2. Maintaining security and scalability while sacrificing decentralization.

Therefore, if we approach this purely from a rational perspective, the choice of which combination a blockchain selects depends entirely on what goals it aims to achieve.

If it aims to build a platform that minimizes single points of failure, is immune to interference from any single party, and has a complex application ecosystem, it must choose decentralization and security, sacrificing scalability to some extent.

If it merely aims to serve a specific niche or user group and particularly values user experience, it will likely choose security and scalability while sacrificing decentralization. It is worth noting that in real-world cases, blockchains that choose this goal may superficially appear to sacrifice only decentralization, but often compromise on stability and sustainability as well.

Using this trilemma to assess Nasdaq's token trading platform, it is relatively easy to determine its choice:

The trading platform Nasdaq needs is a typical RWA application platform. The purpose of such a platform is certainly not to be the first; its applications not only do not require decentralization but must also embrace centralization closely, as every action it takes is under the supervision of the U.S. Securities and Exchange Commission. If it violates the regulations of the SEC one day, I would not be surprised if its platform is ordered to suspend operations.

Therefore, its goal is certainly the second one.

As for what specific technical solution it might choose, that entirely depends on business judgment and cost considerations.

If it chooses to build its platform on Ethereum or a Layer 2 solution based on Ethereum, it aims to leverage the security and stability provided by Ethereum, saving on construction costs and future maintenance costs, but it will have to give up a portion of the profits to Ethereum.

If it selects another blockchain or even builds its own Layer 1 and constructs its platform on it, it seeks to have more flexible control over the platform and monopolize all the profits from the platform, but it will have to pay a significant price and cost for that.

In fact, Nasdaq's application could entirely function without blockchain, just like Binance operates a high-performance CEX exchange. Binance can trade tokens, and it can trade tokens; Binance can operate 24 x 7, and it can operate 24 x 7.

I believe the reason it will use blockchain technology is merely to utilize the token standards and smart contract implementations within blockchain technology to facilitate cross-chain transfers with other blockchain platforms.

Some other RWA platforms we have seen recently (such as Robinhood's Layer 2, etc.) have chosen Ethereum's Layer 2 primarily for commercial considerations, hoping to save on security-related costs and build the platform as quickly as possible to generate revenue.

Whether to decentralize is actually not something they need to consider at all.

However, for me, I have always believed that the most active and disruptive applications in this ecosystem will definitely emerge on decentralized platforms.