Understanding LayerFi (Layered Finance): The Inevitable Logic of On-Chain Financial Evolution

Author: BitMart Founder Sheldon Xia

Introduction: Let's Start with a Simple Question

On October 11, 2025, the crypto market experienced the largest liquidation event in history. If you are following this field, you might ask: does such volatility mean that the blockchain experiment has failed? The answer is certainly no. But I would like you to think from a different perspective: which systems collapsed during this extreme stress test? Which systems survived? Which systems were questioned? More importantly, which systems will become stronger?

Let me first introduce my background. I am the founder of BitMart and 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 have also witnessed the complete transformation of this industry from speculative frenzy to infrastructure building. Today, I want to share a core idea with you: LayerFi is not a stopgap; it is an inevitable choice for the maturity of on-chain finance.

To understand this idea, we first need to grasp a more fundamental question: what exactly is the financial system solving?

1. The Essence of Finance is a Balancing Act of Efficiency and Trust

Let’s first establish a framework for thinking. Imagine you want to lend money to a stranger; you face two core questions: first, how do you trust that he will pay you back? Second, can the lending process be fast and cheap enough for both parties to find it worthwhile? These are the two major propositions that the financial system has been solving for three hundred years: trust and efficiency.

Review: How Financial Systems Build Trust

Let’s quickly review history. In 1717, Britain established the gold standard, using gold as a scarce physical asset to guarantee the value of currency. This was humanity's first attempt to solve the trust issue with something "tangible." You can think of it like this: I give you a banknote, but behind that banknote is real gold that you can redeem at any time.

By 1944, the Bretton Woods system was established, and the trust mechanism became more complex. The dollar was pegged to gold, and other countries' currencies were pegged to the dollar. This was like building a pyramid of trust: gold at the bottom, the dollar in the middle, and other currencies at the top. But this system collapsed in 1971 when Nixon announced that the dollar would no longer be pegged to gold. From then on, trust began to shift from "physical assets" to "institutional commitments" and "market mechanisms."

At the same time, efficiency improvements were underway. In the 1960s, computerized clearing systems emerged, transforming financial transactions from manual matching to electronic processing. Think about it: previously, to complete a transaction, traders had to shout prices in the trading hall; now, they just click a mouse. This is a classic example of how technology enhances efficiency.

There is an important realization here: every major transformation in the financial system essentially rebalances the relationship between efficiency and trust.

The Dilemma of Traditional Finance: Trust Costs Erode Efficiency, Friction Continues to Rise

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

This system worked well during the industrial era. But in today’s digital and globalized world, problems began to surface. Let me give you a specific example:

Suppose you are in China and want to transfer $10,000 to a friend in the United States. This money needs to pass through your bank, an agent bank, the receiving bank, and several layers of institutions. Each layer charges fees, and each layer requires compliance checks. The entire process may take 1 to 3 business days, with fees potentially reaching hundreds of dollars. More importantly, you cannot see in real-time where your money is; you can only "trust" these intermediaries to handle it properly.

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

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

The Breakthrough of Blockchain: Replacing Intermediaries with Algorithms

This is the significance of blockchain technology. In 2008, Satoshi Nakamoto published the Bitcoin white paper, proposing a revolutionary idea: we can establish trust using "distributed ledgers + proof of work" without relying on intermediaries.

Let me explain this concept with an analogy. Traditional finance is like a centralized library where all the ledgers are kept by a librarian, and you have to trust that the librarian won't tamper with the records. In contrast, blockchain is like copying that ledger thousands of times and distributing it to everyone. Whenever there is a new transaction, everyone's ledger is updated simultaneously. If someone wants to tamper with the record, they would need to modify thousands of ledgers at the same time, which is practically impossible.

From 2013 to 2015, the emergence of Ethereum further propelled this revolution. Vitalik Buterin introduced the concept of "smart contracts." This means that financial rules can be written as code and executed automatically. Using the previous example: if you want to transfer money to your friend in the U.S., a smart contract can automatically check your balance, execute the transfer, and update both accounts—all without any intermediaries, completed in minutes, with fees potentially only a few dollars.

By October 2025, the total locked value (TVL) in DeFi (decentralized finance) had reached $160 billion, with daily trading volume on decentralized exchanges peaking at $80 billion. These numbers prove that replacing intermediaries with algorithms is not just a theory but a reality being practiced on a large scale.

However, Pure Decentralization Faces New Problems

Here, I need to help you understand a key turning point. Although DeFi technically achieves trustlessness, it exposes a new contradiction: experience and trust seem to be mutually exclusive.

For example: pure DeFi requires users to manage their own private keys and mnemonic phrases using self-custody wallets like MetaMask. It’s like giving you a key to a safe but telling you: if you lose this key or write the password incorrectly, all your assets will be lost forever, and no one can help you recover them. This is too high a barrier for those who are not tech-savvy.

On the other hand, while pure centralized exchanges are convenient to use, you must fully trust that the platform will not misappropriate your assets. There have been numerous historical incidents of centralized exchanges collapsing or running away, resulting in significant user losses.

This leads us to today’s main character: LayerFi. It attempts to answer a question: can we provide a centralized user experience while maintaining decentralized trust?

2. Understanding the Innovative Architecture of LayerFi

Now let’s delve into what LayerFi really is. Many people simply think of LayerFi as a hybrid of CeFi (centralized finance) and DeFi (decentralized finance), a compromise solution. But this understanding is rather superficial.

The Core Design Philosophy of LayerFi: Layered Architecture

Let me open your mind with an analogy you are familiar with. Imagine you are using an e-commerce platform, like Amazon. The front-end interface you see is meticulously designed—simple and user-friendly, allowing you to easily browse products, place orders, and make payments. 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, nor do you need to understand their details.

LayerFi adopts this very idea: the user-visible front end pursues an ultimate experience, while the user-invisible back end anchors decentralized trust. But this is not a simple "front-end and back-end separation"; it is 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 deeply buried underground, bearing the weight of the entire building, and must be extremely solid, possibly taking years to build, but once completed, it is unshakeable. The main structure needs to be strong enough to support various functions but does not need to be over-engineered like the foundation. The top-level observation restaurant is elegant and exquisite, providing an ultimate user experience.

No one would question why the foundation and the restaurant use different materials and designs—because they are solving fundamentally different problems. 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 technological solutions.

First Layer: Settlement Layer ------ The Foundation of Trust

This is the foundation of the entire system, responsible for final asset settlement and security assurance. In this layer, our core goal is decentralization and absolute security, not speed. Just like a bank vault, we prefer it to be a bit slower and more complex, but it must be absolutely secure.

In terms of technical implementation, this layer is typically the Ethereum mainnet or other mature Layer 1 blockchains. All key asset custody and ownership verification are completed in this layer. Your assets are locked here through smart contracts, which are fully 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, and it’s acceptable to be expensive, but it must be unbreakable. Just like you wouldn’t complain about the bank vault’s door being too thick or slow to open—because that is the guarantee of security.

Second Layer: Execution Layer ------ The Engine of Efficiency

This is the middle layer of the system, responsible for processing a large number of daily transactions and calculations. In 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 over-engineering like 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 to efficiently process a large number of transactions off-chain and then only submit the final results to the settlement layer. It’s like various departments of a company processing a large amount of business daily but only needing to report summarized results to headquarters periodically.

Let me give you a specific example. Suppose you are conducting high-frequency trading on the LayerFi platform, with dozens of transactions per second. If each transaction had to be confirmed on the Ethereum mainnet, you would be overwhelmed by the high gas fees (potentially dozens of dollars per transaction) and slow confirmation speeds (which could take minutes). But through the execution layer, these transactions are completed instantly on Layer 2, costing only a few cents, with speeds reaching milliseconds. The system then periodically packages the results of batch transactions and submits them to the settlement layer to ensure final security.

This design allows you to gain both speed and cost advantages while maintaining ultimate decentralized security assurance. This is not a compromise but an optimal solution achieved at different levels.

Third Layer: Application Layer ------ The Interface of Experience

This is the layer that users directly interact with, responsible for providing a friendly interface and rich functionalities. In this layer, we pursue an ultimate user experience. It’s like the restaurant at the top of the skyscraper, which must be elegant, comfortable, and easy to use.

In this layer, the platform can adopt a centralized approach to optimize the experience since this layer does not involve asset control.

You can register using your phone number or email without needing to understand what a private key is. You can receive real-time assistance from customer service, just like using a traditional financial app. The system will automatically handle complex technical details: calculating and advancing gas fees, verifying address formats, optimizing transaction paths, and providing real-time market analysis and risk alerts. All of this is to ensure your experience is as smooth as possible.

But there is a crucial design principle here: although this layer is centralized, it has no authority to touch your assets. Just like a restaurant waiter can take your order, pour water, and introduce dishes, but they cannot take money from your wallet. Your assets are always locked in the smart contracts of the first layer, and only you can transfer them through cryptographic signatures.

What the platform can do in this layer is to help you construct transaction instructions, provide interfaces, and optimize experiences. But the ultimate power to execute these instructions is always in your hands.

The Ingenuity of Layered Design: Breaking the Impossible Triangle

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

Traditional blockchain systems face a well-known "impossible triangle": decentralization, security, and performance cannot all be optimized simultaneously. If you choose extreme decentralization and security (like Bitcoin), you have to sacrifice performance; if you choose high performance (like some new public chains), you have to compromise on the degree of decentralization.

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

Asset custody must be decentralized and secure, but it can be slower—so we place it in the settlement layer. Daily transactions require high performance and low cost, but can moderately reduce the degree of decentralization—so we place it in the execution layer, while ensuring final security by periodically submitting results to the settlement layer. The user interface requires an ultimate experience and can be fully centralized—so we place it in the application layer, but never give it asset control.

This is like a successful logistics system in reality. For ordinary packages, standard processes are used, pursuing efficiency; for valuable items, special protection processes are activated; and in the final core clearing and accountability phase, strict institutional guarantees are in place. Each layer is optimized for specific needs, achieving a balance of cost, efficiency, and security overall.

Real-World Validation of the October 11 Event: A True Display of Architectural Advantages

Now let’s return to the initial question of the article: why did some systems collapse during the extreme market conditions on October 11, while platforms with certain architectures performed steadily?

Traditional centralized exchanges are prone to systemic risk transmission under concentrated clearing pressure. It’s like a domino effect; if one link has a problem, the entire system is affected. Moreover, in extreme cases, platforms may take opaque risk control measures out of self-interest, even maliciously liquidating positions. Users are entirely reliant on the platform's "goodwill," but at critical moments of survival, the platform's "goodwill" is often unreliable.

Purely decentralized DeFi, while free from the risk of platform malfeasance, faces challenges with on-chain execution delays and users needing to manage risks independently, making it difficult for many users to respond to market changes in a timely manner. When gas fees soar to hundreds of dollars during extreme market conditions, ordinary users cannot operate. When liquidation prices are triggered, users may be unable to add margin in time due to technical issues, leading to amplified losses.

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

The centralized front end can respond quickly, maintaining liquidity and service continuity, helping users adjust their positions in a timely manner. The system can provide real-time risk alerts, automatically adjust gas fee strategies, and optimize transaction paths. These functions require powerful centralized server support, but they can indeed save lives at critical moments.

The decentralized back end ensures the transparency and fairness of the liquidation process through smart contracts, avoiding human intervention. You can verify in real-time that the platform is executing liquidations according to established rules, rather than through opaque operations. Even if the platform's front-end servers crash, your assets remain securely locked on-chain, executed according to the rules, and you can interact directly with the smart contracts to retrieve your assets through other means.

This is like a ship navigating through a storm: the captain (centralized front end) needs to respond flexibly to changes, adjust the course in a timely manner, and direct the crew to handle various emergencies; but the ship's structure (decentralized back end) must be solid and reliable, not subject to changes in basic physical rules due to the captain's decisions. The captain can decide which route to take, but he cannot change the ship's materials, nor can he make an iron ship suddenly become a paper ship.

Think about it: is this architecture a compromise? No, it is a systematic innovation that achieves optimal solutions at different levels. It allows you to have the support of professional services while retaining ultimate control over your assets.

3. 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 start with a thought experiment. Imagine that on-chain finance needs to grow from the current 25 million monthly active users to 150 million monthly active users. What is needed?

The answer is simple: lowering the usage threshold. The vast majority of people are not tech experts; they do not want to understand what private keys, mnemonic phrases, or gas fees are. They just want a simple and easy-to-use financial service. Just like most people use PayPal or WeChat Pay, they do not need to understand the underlying payment clearing technology; they just need to scan a code.

The usage threshold of pure DeFi means it can only serve a niche group. If a mnemonic phrase is lost, assets are permanently unrecoverable, and many interactions hide uncontrollable security risks, which is an unacceptable risk for ordinary users. Manually setting gas fees can lead to transaction failures or excessive payments if not done carefully. A single character error in an address can send assets to the wrong address, never to be retrieved.

LayerFi solves this problem by "hiding back-end complexity and simplifying front-end interactions." Users enjoy a Web2-level experience, but the underlying security is guaranteed by Web3 technology. This is a prerequisite for large-scale adoption.

An important insight: the success of technology lies not in how advanced it is, but in how many people it can serve.

Second Dimension: The Logic of Institutional Capital Entry

Now let’s look at it from the perspective of institutional investors. Traditional financial institutions manage tens of trillions of dollars in assets, and they are very interested in on-chain finance, but they have two core concerns:

First, the responsibility subject is unclear. The anonymous governance structure of pure DeFi means that if problems arise, there is no one to hold accountable. This conflicts with the basic requirements of financial regulation. Imagine if a pension fund wants to invest in a completely anonymously governed protocol; would regulators agree? Would the board agree?

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

LayerFi addresses these issues. The front end has a clear operating entity that can assume 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, with third-party auditing institutions conducting regular audits.

By 2025, the scale of on-chain RWA (real-world assets) grew from $8.6 billion to $30 billion, a growth of 249%. Most projects adopting the LayerFi architecture. Why? Because traditional financial giants like BlackRock need this "compliance and regulatory oversight + trustworthy technology" hybrid architecture.

If the scale of RWA is to grow to $5 trillion in the next five years, LayerFi will be the necessary path for institutional capital entry.

Third Dimension: Regulatory Adaptability Determines Survival Space

Finally, let’s talk about regulation. This may be the easiest factor to underestimate but ultimately the most decisive.

Global regulatory agencies are shifting their attitudes toward crypto assets from "watching" to "regulating." Their core demand is to achieve controllable risks and traceable responsibilities without stifling innovation.

Pure DeFi struggles to meet basic regulatory requirements such as KYC (Know Your Customer) and AML (Anti-Money Laundering) due to the lack of a governance subject. Regulatory agencies cannot implement effective oversight over a completely anonymous protocol.

Pure CeFi can be regulated, but due to excessive centralization, there is a single point of risk. Platforms may misappropriate customer assets or manipulate markets, requiring ongoing stringent regulation.

LayerFi achieves effective compatibility with regulation through its layered architecture. The front end implements compliance requirements such as KYC and AML, allowing regulatory agencies to clearly know who is using the platform. The back-end on-chain records are completely transparent, enabling regulatory agencies to track the flow of funds in real-time, preventing money laundering and terrorist financing risks.

Let me give you a historical analogy: the emergence of PayPal in 1998. It did not attempt to overturn the banking system but acted as a bridge between the traditional banking system and internet payments, promoting the large-scale adoption of electronic payments within a compliance framework.

LayerFi plays a similar role: it is a bridge between decentralized ideals and regulatory realities, a feasible path for on-chain finance to move toward mainstream acceptance.

4. The Four Pillars Supporting the LayerFi Ecosystem

Now let’s delve into how the LayerFi ecosystem operates. I like to use architecture as an analogy: if the modular architecture is the skeleton, then RWA, composability, security systems, and compliance frameworks are the four pillars supporting this building.

First Pillar: RWA ------ The Value Anchor Connecting Virtual and Real

Let me first ask you a question: why was early DeFi considered a "house of cards"? Because it primarily relied on crypto-native assets like BTC and ETH, which have volatile values and little connection to the real economy.

Imagine this: when the global stock market crashes, Bitcoin might soar; when the Federal Reserve raises interest rates, Ethereum might plummet. This disconnect from the traditional economy makes it difficult for DeFi to become a true financial infrastructure.

The introduction of RWA (real-world assets) changed this situation. Through blockchain technology, we can tokenize traditional assets such as government bonds, stocks, bills, real estate, money market funds, and commodities, allowing them to circulate and trade on-chain.

Let me illustrate with a specific example. BlackRock's BUIDL fund invests in tokenized U.S. government bonds. This means that an ordinary investor in Singapore can purchase a tokenized share of U.S. government bonds for a few thousand dollars, enjoying the stable returns of U.S. government bonds. In the traditional financial system, this would require complex cross-border processes and high entry barriers.

At the beginning of 2024, the scale of on-chain RWA was only $8.6 billion. By September 2025, this figure surpassed $30 billion, a growth of 249%. Why such rapid growth? Because regulations are 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 but also establishes a bridge between on-chain finance and the real economy.

Second Pillar: Composability ------ The Lego Blocks of the Financial World

Now let me help you understand a more abstract but crucial concept: composability. This is the core gene that distinguishes 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 navigate multiple systems. For example, if you want to create an "arbitrage strategy": borrow on platform A, buy assets on platform B, sell on platform C, and then repay on platform A. This process could take days, involve multiple accounts, and be complex and risky.

In on-chain finance, all of this can be accomplished in a single transaction. Different protocols, assets, and functions are like Lego blocks that can be freely combined. This is called "composability."

Let me explain composability in three levels:

• Morphological Composability: This is the most basic level. Just like USB interfaces are standardized, any USB device can plug into any USB port. On-chain, all tokens follow the same standard (like ERC-20), and all protocols provide standardized interfaces. Thus, USDC can be traded on Uniswap and borrowed on Aave without any adaptation.

• Syntactic Composability: This is like function calls in programming languages. You can combine Uniswap's trading functionality, Aave's lending functionality, and Compound's interest rate mechanisms to create entirely new financial products. Developers can assemble existing modules like building blocks.

• Atomic Composability: This is the highest level. Multiple operations can either "all succeed or all fail" in a single transaction. Either all steps succeed, or everything rolls back. This avoids risk exposure in intermediate links. It’s like dominoes; either they all fall or none fall.

Now, the introduction of AI technology has taken composability to a new level. AI agents can monitor the market in real-time and automatically combine the optimal protocols and strategies. For example, when market volatility increases, AI can automatically shift your assets from high-risk leveraged trading to stablecoin investments; when arbitrage opportunities arise, AI can automatically invoke flash loans and DEX modules to complete the arbitrage.

Composability allows on-chain finance to evolve from "programmable finance" to "self-driving finance," an innovative dimension unimaginable in traditional finance.

Third Pillar: Security System ------ The Technical Foundation of Trust

Let’s face a problem honestly: security risks are one of the biggest challenges in on-chain finance. In the first half of 2025, the DeFi industry lost hundreds of millions of dollars due to various security issues. If we cannot guarantee basic security, then even the best architecture is meaningless.

How does LayerFi address this challenge? The answer is: by establishing a multi-layered security defense system.

• Prevention: All new projects undergo security audits and ratings by authoritative or market-recognized security institutions before going live. This is like a building needing to pass fire safety inspections before being put into use. Audit content includes code logic vulnerabilities, permission control flaws, asset security risks, etc. For core protocols, formal verification is also required to mathematically prove the correctness of code logic.

For RWA projects, in addition to technical audits, off-chain asset due diligence is also necessary. For example, tokenized bonds need to verify the credit rating of the issuer, the authenticity of money market funds, the legality of custodians for stocks and bills, and real estate needs to verify property ownership and valuation reports.

• Monitoring: The platform monitors on-chain transaction behavior in real-time. If abnormal fund flows are detected, such as large transfers or frequent small transfers (characteristics of money laundering), the system will automatically trigger alerts. If necessary, freezing permissions can be added to freeze accounts or suspend transactions, in compliance with regulatory requirements.

Additionally, some platforms have introduced on-chain insurance mechanisms. Users can purchase insurance, which will compensate them if losses occur due to smart contract vulnerabilities.

• Post-Event Handling: If a security incident does occur, the platform has a clear compensation mechanism. Affected users will be compensated through an income pool or insurance fund. This compensates for the "losses are borne by the user" flaw in pure DeFi models.

The core idea of this system is: we cannot guarantee that problems will never occur, but we can try to prevent them as much as possible before they happen, respond promptly when they do, and handle them properly afterward.

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

Finally, let’s discuss compliance. Many people see compliance as a constraint on innovation, but I want to offer a different perspective: compliance is the ticket for long-term development.

Imagine you want to open a restaurant. You can choose not to obtain a business license or undergo health inspections, saving a lot of costs and trouble. But what is the result? You might be shut down at any time, customers won’t dare to come, and you will never grow. In contrast, if you proactively comply, although the initial costs are higher, you gain the legitimacy for long-term operation, customer trust, and the ability to grow and strengthen.

What does LayerFi's compliance framework look like?

• User Side: Implement moderate KYC and AML requirements. Users need to provide identification during registration, and large transactions require additional verification. This is not to restrict users, but to prevent the platform from being used for money laundering, terrorist organizations, child pornography, etc.

• Platform Side: Actively report the platform's financial status, risk control measures, and user fund management, suggesting a registration system rather than establishing a strict and complex regulatory framework.

• Asset Side: RWA tokenized products must be issued in cooperation with licensed institutions, while native assets can be exempted; future data assets will be discussed separately. For example, tokenized U.S. government bonds must be issued and custodied by financial institutions holding relevant licenses.

Some platforms have even established comprehensive compliance reporting systems. Users can view the platform's asset proofs in real-time, and regulatory agencies can access transaction records at any time. All asset custody information is on-chain and completely transparent.

Compliance is not a constraint but a necessary path for on-chain finance to move toward mainstream acceptance and gain broader recognition.

5. Looking Ahead to the Financial Landscape of 2030

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

Digital Will Speak: The Rise of a Trillion-Dollar Market

First, let’s look at some key data. Grand View Research predicts that 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 just based on revenue. If we look at the actual controlled asset scale, the predictions will be even more aggressive. I believe that by 2030, the total locked value in DeFi will grow from the current $160 billion to $2 trillion. More importantly, the scale of RWA will explode from $30 billion to $5 trillion, with LayerFi platforms contributing over 80%.

User numbers will also see a qualitative leap. Monthly active users will grow from the current 25 million to 150 million. This penetration rate is comparable to the early levels of mobile payments in 2015.

This means: on-chain finance will transform from a tool for professionals into a daily financial service for ordinary people.

Three Stages of Technological Evolution

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

First Stage (2025-2026): Infrastructure Consolidation Period

The core task of this stage is to solidify the foundation. High-performance financial public chains of Layer 1 + Layer 2 technology will become mainstream, with over 70% of transactions completed on Layer 2 networks, and gas fees dropping to a few cents. Imagine that making a transaction on the Ethereum mainnet now might cost dozens of dollars in gas fees; in the future, it will only require a few cents, or on high-performance public chains like Solana or Hyper, you might sacrifice some decentralization for lower gas fees.

At the same time, account abstraction technology will bring a qualitative change to user experience. You will no longer need to remember mnemonic phrases; you can log into your wallet using your phone number, email, or social account, or even an NFT or identity token. If you forget your password, you can recover it through a "social recovery" mechanism, as simple as recovering a WeChat password.

The goal of this stage is: to make using on-chain finance as simple as using PayPal or WeChat Pay.

Second Stage (2027-2028): Application Explosion Period

Once the infrastructure matures, the application layer will experience an explosion. The types of RWA assets will greatly expand, covering not only government bonds but also commercial real estate in core cities, small and medium-sized enterprise loans, etc. The scale of tokenized government bonds is expected to exceed $1 trillion.

Traditional financial institutions will participate deeply. Imagine this: in your bank app, in addition to purchasing traditional financial products, you can also buy on-chain financial products with one click; in your brokerage app, in addition to buying and selling stocks, you can trade tokenized securities.

Even more interesting is the integration of AI + LayerFi. AI agents will become your "smart financial advisors," automatically allocating assets based on your risk preferences. When the market fluctuates, AI will automatically adjust your portfolio; when arbitrage opportunities arise, AI will automatically execute strategies.

The characteristic of this stage is: the boundary between on-chain finance and traditional finance becomes blurred, and users may not even feel they are using blockchain technology.

Third Stage (2029-2030): Ecosystem Maturity Period

By this stage, a unified technical standard and regulatory framework will form globally. Modules developed by different countries and platforms can seamlessly connect. The regulatory system will tend to be consistent, and cross-border business will no longer require 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, achieving product complexity comparable to traditional finance.

The hallmark of this stage is: on-chain finance becomes part of the global financial infrastructure, coexisting with the traditional financial system.

Opportunities for Different Participants

For ordinary users: you don’t need to become a tech expert; you just need to choose a trustworthy LayerFi platform to participate in investments that only institutions could previously access. For example, you can use a few hundred USDC or USDT to purchase tokenized U.S. government bonds, stocks, or money market funds to obtain relatively high-quality assets and returns; you can participate in overseas real estate investments without needing to go there in person.

At the same time, you can also earn token incentives by participating in platform governance, sharing in the platform's growth dividends.

For traditional financial institutions: LayerFi is your best tool for digital transformation. In the short term, you can migrate some back-end processes on-chain, significantly reducing costs; in the medium term, you can launch hybrid products that combine online and offline services to enhance competitiveness; in the long term, you can build your own LayerFi modules to explore global markets.

Importantly: you do not need to overturn your existing systems; you just need to view LayerFi as a tool for business expansion.

For regulatory agencies: it is recommended to implement risk-based regulation, applying different regulatory intensities to projects of varying risk levels. Promote regulatory sandboxes to allow innovative projects to experiment in a controlled environment. Push for the unification of international standards to avoid regulatory arbitrage, prioritizing registration systems.

Conclusion: The Future of Blockchain and Finance is Symbiosis, Not Disruption

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

I hope you now understand: LayerFi is not a compromise but a balance achieved at a higher dimension. It is not simply a trade-off between centralization and decentralization but an optimal solution realized at different levels.

When 2030 arrives, with DeFi TVL surpassing $2 trillion and RWA scale reaching $5 trillion, we will find that LayerFi has not disrupted traditional finance but established a symbiotic ecosystem.

Imagine a scenario where farmers in Africa can directly participate in the global capital market via their phones; investors in New York can easily invest in real estate projects in Asia; ordinary people can enjoy financial services that were once only available to institutions; idle funds can quickly flow to where they are most needed globally.

In this scenario, the compliance and user trust of traditional finance perfectly merge with the transparency and efficiency of on-chain finance. Financial services become as flexible as building blocks, and the financial system becomes as open as the internet.

The market panic of October 11 will eventually subside, but the transformation driven by LayerFi will not stop. In the next 3 to 5 years, projects that deeply engage with LayerFi, focusing on RWA and user experience, will become industry leaders. Ordinary participants just need to choose compliant platforms to share in the dividends of this transformation.

The future of finance is not a choice between efficiency and trust but a collaborative win-win of both; it is not a confrontation between centralization and decentralization but a complementary advantage of both.

LayerFi is the key bridge to this future. And now is the best time for us to embark on this journey.