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

Recently, the Nasdaq 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, then to realize this function, Nasdaq needs a Token trading platform. Since Nasdaq currently does not have such a Token trading platform, a heated debate has arisen online regarding this matter:

Some believe that Nasdaq is likely to build this trading platform on Ethereum or on a Layer 2 extension of Ethereum.

On the other hand, another faction expressed considerable emotions towards this “longing,” believing that these Ethereum maximalists are too presumptuous and self-righteous.

In my opinion, Nasdaq may not necessarily adopt Ethereum or layer two scaling; it is also entirely possible for it to build its own layer one blockchain (L1) to support its ecosystem.

It's like many top projects are rushing to build their own L1.

Vitalik once summarized the blockchain's impossible triangle: decentralization, security, and scalability. In other words, a blockchain cannot simultaneously possess all three elements; at most, it can only have two at the same time.

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

First is to maintain decentralization and security, while sacrificing scalability;

Secondly, maintain security and scalability while sacrificing decentralization.

Therefore, if we approach it purely from a rational perspective, the choice of which combination a blockchain opts for completely depends on what kind of goals it ultimately wishes to achieve.

If it aims to build a platform that tries to avoid single points of failure, is immune to unilateral influences, and has a complex application ecosystem, it must choose decentralization and security, while sacrificing scalability to a certain extent.

If it aims to build something that merely serves a specific niche or user group, and particularly values user experience, it is likely to prioritize security and scalability at the expense of decentralization. It is worth noting that in real-world cases, blockchains that choose this goal superficially appear to have sacrificed decentralization, but in reality, they often compromise on stability and sustainability as well.

Use this impossible triangle to assess the token trading platform of Nasdaq, the choices it makes are relatively easy to judge:

The trading platform required by Nasdaq is a typical RWA application platform. Such a platform is certainly not the first of its kind; its application not only does not require decentralization but also needs to embrace centralization very closely, as every move it makes is regulated by the U.S. Securities and Exchange Commission. I wouldn't be surprised if one day it violates the regulations of the U.S. SEC and is ordered to suspend operations.

Therefore, its purpose is definitely the second one.

The specific technical solution it may choose completely depends on business judgment and cost considerations.

If it chooses to build its platform on Ethereum or an Ethereum-based layer 2 scaling solution, it aims to take advantage of the security and stability provided by Ethereum, save on construction costs, and future maintenance costs, but will have to give up a portion of the profits to Ethereum.

If it chooses other blockchains or even builds its own L1 and constructs its own platform on it, then it wants to have more flexible control over this platform and monopolize all the profits of the entire platform. However, it has to pay a high price and cost for this.

In fact, this application from Nasdaq can operate without blockchain, just like Binance can create a high-performance CEX exchange. Binance can trade tokens, and it can also trade tokens; Binance can operate 24 x 7, and it can also operate 24 x 7.

I think the reason it uses blockchain technology is simply to utilize the token standards and smart contract implementations in blockchain technology to make cross-chain transfers with other blockchain platforms more convenient.

Other RWA platforms we have seen recently (such as Robinhood's L2, etc.) choose to use Ethereum's layer two scaling mainly for commercial considerations, hoping to save on the costs required for security and to build the platform to generate revenue at the fastest speed.

Decentralization or not is actually not something they need to consider at all.

But for me, I have always believed that the most active and disruptive applications in this ecosystem must arise on decentralized platforms.