LayerFi (Layered Finance) is the inevitable choice for the maturation of on-chain finance. It employs a layered architecture to provide a centralized user experience while maintaining decentralized trust.

Core Points

* The essence of finance is balancing efficiency and trust. Traditional finance suffers from high friction costs due to excessive intermediaries, while blockchain replaces intermediaries with algorithms. However, pure DeFi faces challenges like poor user experience and high technical barriers.

* LayerFi addresses this contradiction with a three-tier architecture:

* Settlement Layer (e.g., Ethereum Mainnet) ensures asset security and decentralization, serving as the trust foundation.

* Execution Layer (e.g., Layer 2 scaling solutions) handles high-frequency transactions, achieving low cost and high speed.

* Application Layer provides user-friendly interfaces, optimizing experience without controlling assets.

* This architecture breaks the blockchain "scalability trilemma," achieving an optimal balance of decentralization, security, and performance across different layers.

* During the extreme market volatility on October 11, 2025, LayerFi platforms demonstrated their advantages: front-ends responded swiftly to market changes, while back-ends ensured transparent liquidation through smart contracts.

* Three key reasons why LayerFi will dominate the future:

* Lowers user barriers, enabling mass adoption.

* Meets institutional requirements for accountable entities and compliant custody.

* Effectively complies with regulation through layered design (KYC/AML at the front-end, transparency at the back-end).

* The ecosystem is supported by four cornerstones: RWA (Real World Assets) injecting stable value, composability enabling financial legos, a multi-layered security system, and a compliance framework ensuring long-term development.

* By 2030, total DeFi TVL is projected to reach $2 trillion, RWA scale to increase to $5 trillion, and user count to grow from 25 million to 150 million.

* LayerFi is not a compromise, but a higher-dimensional synergy between financial efficiency and trust, propelling on-chain finance into mainstream infrastructure.

Summary

Some Thoughts on the Future of On-Chain Finance

Written after the severe market volatility on October 11, 2025

BitMart Founder Sheldon Xia

13/10/2025

Introduction: Let's Start with a Simple Question

On October 11, 2025, the crypto market experienced its largest liquidation event ever. If you are following this space, you might ask: Does such volatility mean the blockchain experiment has failed? The answer is definitely no. But I invite 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 emerge stronger?

Let me briefly introduce my background. I am the founder of BitMart, entering the blockchain industry in 2013. Over the past nearly 13 years, our platform has processed trillions of dollars in transactions, serving over 12 million users. I have witnessed the industry's complete transition from speculative frenzy to infrastructure building. Today, I want to share a core viewpoint with you: LayerFi is not a stopgap measure, but the inevitable choice for the maturation of on-chain finance.

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

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

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

Review: How Financial Systems Built Trust

Let's quickly review history. In 1717, Britain established the gold standard, using scarce physical gold to back currency value. This was the first time humanity used something "tangible" to solve the trust problem. Think of it like this: I give you a paper note, but it's backed by real gold you can theoretically redeem.

By 1944, the Bretton Woods system created a more complex trust mechanism. The US dollar was pegged to gold, and other currencies were pegged to the dollar. This was like building a trust pyramid: gold at the base, the dollar in the middle, other currencies at the top. This system collapsed in 1971 when Nixon severed the dollar's link to gold. From then on, trust began shifting from "physical assets" to "institutional promises" and "market mechanisms."

Meanwhile, efficiency was also improving. In the 1960s, computerized clearing systems emerged, turning financial transactions from manual matching to electronic processing. Think about it: previously, completing a trade required traders shouting offers on an exchange floor; now, it just takes a mouse click. This is a classic case of technology enhancing efficiency.

Here's an important insight: 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 Coefficient Keeps Rising

Now let's look at the current traditional financial system. Its core logic is: building trust through intermediary institutions. Banks, exchanges, clearinghouses, custodians – these intermediaries act like "trust nodes," providing guarantees for transacting parties.

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

Suppose you are in China and want to transfer $10,000 to a friend in the US. This money needs to pass through your bank, correspondent banks, the recipient's bank, and multiple other layers. Each layer charges fees and conducts compliance checks. The entire process might take 1-3 business days, with fees potentially reaching tens or even hundreds of dollars. More importantly, you cannot see where your money is in real-time; 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 large institutions' operational costs. What does this mean? It means a significant portion of the cost every time you use a financial service is spent on "proving the system is trustworthy." This is their friction coefficient.

Think about it: What would happen if a technology could reduce trust costs while maintaining or even enhancing efficiency?

Blockchain's Breakthrough: Replacing Intermediaries with Algorithms

This is the significance of blockchain technology. 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 intermediaries.

Let me use an analogy. Traditional finance is like a centralized library where all ledgers are kept by the librarian; you must trust the librarian won't tamper with records. Blockchain is like copying that ledger thousands of times and distributing it to everyone. Whenever a new transaction occurs, everyone's ledger updates simultaneously. If someone wants to tamper, they need to modify thousands of ledgers at once, which is technically nearly impossible.

From 2013-2015, Ethereum's emergence further propelled this revolution. Vitalik Buterin introduced the concept of "smart contracts." This meant financial rules could be written as code and executed automatically. Using the earlier example: you want to transfer money to your US friend; a smart contract can automatically check your balance, execute the transfer, and update both accounts. The entire process needs no intermediaries, takes minutes, and fees might be just a few dollars.

By October 2025, DeFi (Decentralized Finance) Total Value Locked (TVL) reached $160 billion, and decentralized exchange daily trading volume peaked at $80 billion. These numbers prove that replacing intermediaries with algorithms is not just a theory, but a reality being practiced at scale.

But Pure Decentralization Encountered New Problems

Here I need to help you understand a crucial turning point. Although DeFi achieved trustlessness technically, it exposed a new contradiction: experience and trust seemed mutually exclusive.

For example: Pure DeFi requires users to use self-custody wallets like MetaMask, managing private keys and seed phrases. It's like giving you a safe key but telling you: if you lose this key or write the password wrong, all your assets are lost forever, with no one to help you recover. This barrier is too high for non-technical users.

On the other hand, purely centralized exchanges are easy to use, but you must completely trust the platform won't misuse your assets. History has seen multiple instances of centralized exchanges collapsing or absconding, causing significant user losses.

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

II. Understanding LayerFi's Innovative Architecture

Now let's deeply understand what LayerFi actually is. Many simplistically think LayerFi is just a hybrid of CeFi (Centralized Finance) and DeFi, a compromise. But this understanding is superficial.

LayerFi's Core Design Philosophy: Layered Architecture

Let me use a familiar analogy. Imagine using an e-commerce platform like Amazon. The front-end interface you see is meticulously designed – simple and easy to use, allowing you to easily browse products, place orders, and pay. But in the back-end, extremely complex inventory management, logistics dispatch, and payment clearing systems are running. You don't need to see or understand the details of these systems.

LayerFi adopts precisely this approach: the user-visible front-end pursues ultimate experience, while the user-invisible back-end anchors decentralized trust. But this isn't simple "front-end/back-end separation"; it's a deeper architectural innovation.

Let me use another analogy to explain the essence of this innovation. Imagine a modern skyscraper. The foundation is buried deep underground, bearing the building's entire weight; it must be extremely sturdy, potentially taking years to build, but once done, it's unbreakable. The main structure needs to be strong enough to support various functions but doesn't need the over-engineering of the foundation. The top-floor observation restaurant is elegant and refined, offering the ultimate user experience.

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

Detailed Breakdown of LayerFi's Three-Tier 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 1: Settlement Layer – The Bedrock of Trust

This is the system's foundation, responsible for final asset settlement and security assurance. In this layer, the core goals are decentralization and absolute security, not speed. Like a bank vault, we prefer it slower, more complex, but absolutely secure.

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

This layer's design philosophy is: Slower is okay, more expensive is acceptable, but it must be unbreakable. You don't complain about a bank vault door being too thick or slow to open – that's the guarantee of security.

Layer 2: Execution Layer – The Engine of Efficiency

This is the system's middle layer, handling vast amounts of daily transactions and computations. Here, we pursue high performance and low cost. This is like the building's main structure, needing to be strong enough to support various functions but not over-engineered like the foundation.

Technically, this layer typically uses Layer 2 scaling solutions like Optimistic Rollup or ZK-Rollup. The core idea is: process numerous transactions efficiently off-chain, then submit only the final result batch to the settlement layer. It's like various company departments handling daily business, only reporting summarized results periodically to headquarters.

Let me give a concrete example. Suppose you are high-frequency trading on a LayerFi platform, maybe dozens of trades per second. If each trade required confirmation on the Ethereum mainnet, you'd be crippled by high Gas fees (potentially tens of dollars per trade) and slow confirmation times (possibly minutes). But via the execution layer, these trades complete instantly on Layer 2, costing just cents, with millisecond speeds. The system then periodically batches transaction results and submits them to the settlement layer, ensuring final security.

This design gives you both speed/cost advantages and ultimate decentralized security. This isn't a compromise, but achieving optimal solutions at different layers.

Layer 3: Application Layer – The Interface of Experience

This is the layer users directly interact with, providing friendly interfaces and rich functionalities. Here, we pursue the ultimate user experience. This is like the skyscraper's top-floor restaurant – must be elegant, comfortable, and easy to use.

In this layer, platforms can adopt centralized methods to optimize experience because this layer does not involve asset control.

You can register with a phone number or email without understanding private keys. You can get real-time help from customer service, just like using traditional finance apps. The system automatically handles complex technical details: Gas fee calculation and sponsorship, address format validation, 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 crucial design principle: Although this layer is centralized, it has no permission to touch your assets. Like a restaurant waiter can take your order, pour water, describe dishes, but they can't take money from your wallet. Your assets remain locked in Layer 1 smart contracts; only you can transfer them via cryptographic signatures.

What the platform can do at this layer is help construct transaction instructions, provide the interface, and optimize the experience. But the final power to execute these instructions always remains in your hands.

LayerFi (Layered Finance) is the inevitable choice for the maturation of on-chain finance. It employs a layered architecture to provide a centralized user experience while maintaining decentralized trust.

Core Points

* The essence of finance is balancing efficiency and trust. Traditional finance suffers from high friction costs due to excessive intermediaries, while blockchain replaces intermediaries with algorithms. However, pure DeFi faces challenges like poor user experience and high technical barriers.

* LayerFi addresses this contradiction with a three-tier architecture:

* Settlement Layer (e.g., Ethereum Mainnet) ensures asset security and decentralization, serving as the trust foundation.

* Execution Layer (e.g., Layer 2 scaling solutions) handles high-frequency transactions, achieving low cost and high speed.

* Application Layer provides user-friendly interfaces, optimizing experience without controlling assets.

* This architecture breaks the blockchain "scalability trilemma," achieving an optimal balance of decentralization, security, and performance across different layers.

* During the extreme market volatility on October 11, 2025, LayerFi platforms demonstrated their advantages: front-ends responded swiftly to market changes, while back-ends ensured transparent liquidation through smart contracts.

* Three key reasons why LayerFi will dominate the future:

* Lowers user barriers, enabling mass adoption.

* Meets institutional requirements for accountable entities and compliant custody.

* Effectively complies with regulation through layered design (KYC/AML at the front-end, transparency at the back-end).

* The ecosystem is supported by four cornerstones: RWA (Real World Assets) injecting stable value, composability enabling financial legos, a multi-layered security system, and a compliance framework ensuring long-term development.

* By 2030, total DeFi TVL is projected to reach $2 trillion, RWA scale to increase to $5 trillion, and user count to grow from 25 million to 150 million.

* LayerFi is not a compromise, but a higher-dimensional synergy between financial efficiency and trust, propelling on-chain finance into mainstream infrastructure.

Summary

Some Thoughts on the Future of On-Chain Finance

Written after the severe market volatility on October 11, 2025

BitMart Founder Sheldon Xia

13/10/2025

Introduction: Let's Start with a Simple Question

On October 11, 2025, the crypto market experienced its largest liquidation event ever. If you are following this space, you might ask: Does such volatility mean the blockchain experiment has failed? The answer is definitely no. But I invite 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 emerge stronger?

Let me briefly introduce my background. I am the founder of BitMart, entering the blockchain industry in 2013. Over the past nearly 13 years, our platform has processed trillions of dollars in transactions, serving over 12 million users. I have witnessed the industry's complete transition from speculative frenzy to infrastructure building. Today, I want to share a core viewpoint with you: LayerFi is not a stopgap measure, but the inevitable choice for the maturation of on-chain finance.

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

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

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

Review: How Financial Systems Built Trust

Let's quickly review history. In 1717, Britain established the gold standard, using scarce physical gold to back currency value. This was the first time humanity used something "tangible" to solve the trust problem. Think of it like this: I give you a paper note, but it's backed by real gold you can theoretically redeem.

By 1944, the Bretton Woods system created a more complex trust mechanism. The US dollar was pegged to gold, and other currencies were pegged to the dollar. This was like building a trust pyramid: gold at the base, the dollar in the middle, other currencies at the top. This system collapsed in 1971 when Nixon severed the dollar's link to gold. From then on, trust began shifting from "physical assets" to "institutional promises" and "market mechanisms."

Meanwhile, efficiency was also improving. In the 1960s, computerized clearing systems emerged, turning financial transactions from manual matching to electronic processing. Think about it: previously, completing a trade required traders shouting offers on an exchange floor; now, it just takes a mouse click. This is a classic case of technology enhancing efficiency.

Here's an important insight: 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 Coefficient Keeps Rising

Now let's look at the current traditional financial system. Its core logic is: building trust through intermediary institutions. Banks, exchanges, clearinghouses, custodians – these intermediaries act like "trust nodes," providing guarantees for transacting parties.

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

Suppose you are in China and want to transfer $10,000 to a friend in the US. This money needs to pass through your bank, correspondent banks, the recipient's bank, and multiple other layers. Each layer charges fees and conducts compliance checks. The entire process might take 1-3 business days, with fees potentially reaching tens or even hundreds of dollars. More importantly, you cannot see where your money is in real-time; 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 large institutions' operational costs. What does this mean? It means a significant portion of the cost every time you use a financial service is spent on "proving the system is trustworthy." This is their friction coefficient.

Think about it: What would happen if a technology could reduce trust costs while maintaining or even enhancing efficiency?

Blockchain's Breakthrough: Replacing Intermediaries with Algorithms

This is the significance of blockchain technology. 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 intermediaries.

Let me use an analogy. Traditional finance is like a centralized library where all ledgers are kept by the librarian; you must trust the librarian won't tamper with records. Blockchain is like copying that ledger thousands of times and distributing it to everyone. Whenever a new transaction occurs, everyone's ledger updates simultaneously. If someone wants to tamper, they need to modify thousands of ledgers at once, which is technically nearly impossible.

From 2013-2015, Ethereum's emergence further propelled this revolution. Vitalik Buterin introduced the concept of "smart contracts." This meant financial rules could be written as code and executed automatically. Using the earlier example: you want to transfer money to your US friend; a smart contract can automatically check your balance, execute the transfer, and update both accounts. The entire process needs no intermediaries, takes minutes, and fees might be just a few dollars.

By October 2025, DeFi (Decentralized Finance) Total Value Locked (TVL) reached $160 billion, and decentralized exchange daily trading volume peaked at $80 billion. These numbers prove that replacing intermediaries with algorithms is not just a theory, but a reality being practiced at scale.

But Pure Decentralization Encountered New Problems

Here I need to help you understand a crucial turning point. Although DeFi achieved trustlessness technically, it exposed a new contradiction: experience and trust seemed mutually exclusive.

For example: Pure DeFi requires users to use self-custody wallets like MetaMask, managing private keys and seed phrases. It's like giving you a safe key but telling you: if you lose this key or write the password wrong, all your assets are lost forever, with no one to help you recover. This barrier is too high for non-technical users.

On the other hand, purely centralized exchanges are easy to use, but you must completely trust the platform won't misuse your assets. History has seen multiple instances of centralized exchanges collapsing or absconding, causing significant user losses.

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

II. Understanding LayerFi's Innovative Architecture

Now let's deeply understand what LayerFi actually is. Many simplistically think LayerFi is just a hybrid of CeFi (Centralized Finance) and DeFi, a compromise. But this understanding is superficial.

LayerFi's Core Design Philosophy: Layered Architecture

Let me use a familiar analogy. Imagine using an e-commerce platform like Amazon. The front-end interface you see is meticulously designed – simple and easy to use, allowing you to easily browse products, place orders, and pay. But in the back-end, extremely complex inventory management, logistics dispatch, and payment clearing systems are running. You don't need to see or understand the details of these systems.

LayerFi adopts precisely this approach: the user-visible front-end pursues ultimate experience, while the user-invisible back-end anchors decentralized trust. But this isn't simple "front-end/back-end separation"; it's a deeper architectural innovation.

Let me use another analogy to explain the essence of this innovation. Imagine a modern skyscraper. The foundation is buried deep underground, bearing the building's entire weight; it must be extremely sturdy, potentially taking years to build, but once done, it's unbreakable. The main structure needs to be strong enough to support various functions but doesn't need the over-engineering of the foundation. The top-floor observation restaurant is elegant and refined, offering the ultimate user experience.

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

Detailed Breakdown of LayerFi's Three-Tier 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 1: Settlement Layer – The Bedrock of Trust

This is the system's foundation, responsible for final asset settlement and security assurance. In this layer, the core goals are decentralization and absolute security, not speed. Like a bank vault, we prefer it slower, more complex, but absolutely secure.

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

This layer's design philosophy is: Slower is okay, more expensive is acceptable, but it must be unbreakable. You don't complain about a bank vault door being too thick or slow to open – that's the guarantee of security.

Layer 2: Execution Layer – The Engine of Efficiency

This is the system's middle layer, handling vast amounts of daily transactions and computations. Here, we pursue high performance and low cost. This is like the building's main structure, needing to be strong enough to support various functions but not over-engineered like the foundation.

Technically, this layer typically uses Layer 2 scaling solutions like Optimistic Rollup or ZK-Rollup. The core idea is: process numerous transactions efficiently off-chain, then submit only the final result batch to the settlement layer. It's like various company departments handling daily business, only reporting summarized results periodically to headquarters.

Let me give a concrete example. Suppose you are high-frequency trading on a LayerFi platform, maybe dozens of trades per second. If each trade required confirmation on the Ethereum mainnet, you'd be crippled by high Gas fees (potentially tens of dollars per trade) and slow confirmation times (possibly minutes). But via the execution layer, these trades complete instantly on Layer 2, costing just cents, with millisecond speeds. The system then periodically batches transaction results and submits them to the settlement layer, ensuring final security.

This design gives you both speed/cost advantages and ultimate decentralized security. This isn't a compromise, but achieving optimal solutions at different layers.

Layer 3: Application Layer – The Interface of Experience

This is the layer users directly interact with, providing friendly interfaces and rich functionalities. Here, we pursue the ultimate user experience. This is like the skyscraper's top-floor restaurant – must be elegant, comfortable, and easy to use.

In this layer, platforms can adopt centralized methods to optimize experience because this layer does not involve asset control.

You can register with a phone number or email without understanding private keys. You can get real-time help from customer service, just like using traditional finance apps. The system automatically handles complex technical details: Gas fee calculation and sponsorship, address format validation, 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 crucial design principle: Although this layer is centralized, it has no permission to touch your assets. Like a restaurant waiter can take your order, pour water, describe dishes, but they can't take money from your wallet. Your assets remain locked in Layer 1 smart contracts; only you can transfer them via cryptographic signatures.

What the platform can do at this layer is help construct transaction instructions, provide the interface, and optimize the experience. But the final power to execute these instructions always remains in your hands.