The integration path of TradFi experience and Decentralization innovation

Abstract

Traditional platforms, while mature in terms of “compliance + experience + coverage”, are constrained by centralized custody, lack of transparency, delays in settlement, and regional barriers. Web3 enters the scene with self-custody, on-chain verifiability, and global accessibility, enhancing capital efficiency through oracles, partial settlement, unified collateral, and fund reuse. The landscape is becoming multipolar: dYdX (order book), GMX (GLP pool), Hyperliquid (high-performance matching), Avantis (multi-asset synthesis/RWA). The characteristics of Web3 leveraged trading lie in CEX-level low-latency experience + institutional-level risk control compliance + multi-asset integration. By 2030, it is expected to grow into a hundred billion dollar-level infrastructure.

1. Industry Status and Overview

In the development of global capital markets, leveraged trading has always been an important tool for promoting liquidity and risk pricing efficiency. Starting with IG Group's pioneering introduction of Contracts for Difference (CFD) in the 1970s, to the rise of internet platforms like Robinhood and Plus500 in the 21st century, leveraged trading has gradually shifted from institutional monopoly to widespread adoption. With the help of financial derivatives such as margin, options, and futures, investors can leverage smaller funds to gain larger market exposure, thus amplifying returns while also taking on greater risks. Over the past 50 years, traditional financial leveraged trading platforms have accumulated rich experience in product coverage, user experience, and compliance, gradually forming a highly mature business model. However, against the backdrop of the rapid evolution of digital finance and blockchain technology, the deep-seated limitations of this system have become increasingly apparent, and the rise of Web3 aims to address these limitations. Looking back at the evolution path of traditional finance, its success lies in the standardization and broad coverage of product design, continuous optimization of user experience, and endorsements from regulatory compliance. IG Group offers over 19,000 tradable instruments, covering multiple markets such as stocks, forex, and commodities, reflecting a strategy of “comprehensive coverage”; Plus500 has rapidly accumulated users through over 2,800 types of CFD tools and its compliant status listed on the London Stock Exchange; Robinhood has attracted a large number of Generation Z investors with its “zero commission” and mobile-friendly experience, popularizing leveraged trading as a traditional financial tool. These platforms ensure investor trust by holding multiple regulatory licenses worldwide, laying the foundation for the entire industry.

However, the deep-seated problems of this model are amplified in the digital finance era. First is the risk of centralization. All traditional platforms are based on a structure of fund custody and centralized clearing, requiring users to entrust their funds to the platform for management. Robinhood limited users' buying permissions during the GME incident in 2021 due to clearing pressure, directly impacting trading freedom and exposing the risk that centralized platforms can change rules at any time. Furthermore, the collapse of MF Global in 2011 highlighted counterparty risk, as investors suffered huge losses when the platform used customer margins to maintain liquidity. Secondly, there is a lack of transparency. Traditional platforms lack an open mechanism for order matching, risk hedging, and price discovery, making it impossible for investors to confirm whether the platform engages in “betting” behavior, forcing them to passively rely on the disclosed information. This black-box operation exacerbates the asymmetric information problem and undermines market fairness. Additionally, the restrictions on fund custody mean that investors lack autonomy over their assets. In the event of platform bankruptcy, hacking, or regulatory freezes, user funds are often difficult to recover. When oil futures dropped to negative values in 2020, some platforms experienced large-scale liquidation events due to clearing delays, resulting in losses for both the platform and users, indicating that the centralized clearing mechanism has structural vulnerabilities in extreme market conditions. Regulatory barriers are another significant limitation of traditional platforms. Different markets have varying policy restrictions on leveraged trading; for example, Europe limits retail forex trading to a leverage of 30 times, while some emerging markets are relatively more lenient, preventing users from enjoying equitable financial services globally. Coupled with the high costs of maintaining compliance licenses, these costs are ultimately passed on to users, manifested as higher spreads, fees, and minimum deposit thresholds, further restricting widespread public participation.

These structural limitations provide an entry point for Web3. Unlike traditional models, Web3 reshapes the underlying logic of leveraged trading through blockchain and smart contracts. Firstly, the self-custody model addresses centralization risks, allowing users to complete transactions directly via their wallets without relying on platform credit. Secondly, all matching and clearing logic is publicly verifiable on-chain, reducing information asymmetry and enabling investors to audit trading rules in real-time. Furthermore, assets no longer need to be stored in platform accounts but are kept by users themselves, reducing bankruptcy and liquidation risks. Geographic barriers have also been significantly weakened; as long as users have a crypto wallet and internet connection, they can participate in global financial services. Compliance cost issues also have potential solutions in Web3, such as achieving modular compliance through DAO governance and protocol layer design, exploring compatibility with regulatory systems in different regions. As for liquidity crises, decentralized protocols enhance system resilience through mechanisms like risk-sharing in liquidity pools, partial liquidation, and insurance funds. Therefore, the logic of traditional financial platforms and Web3 platforms is not completely substitutive but rather complementary and evolutionary. The former's successful experiences validate the long-term market demand for leveraged trading and have formed mature user habits; the latter complements and reshapes the traditional model through technological innovation. In future development, the two may potentially merge to create a new generation of hybrid financial systems: traditional platforms enhance transparency and resilience by integrating blockchain technology, while Web3 platforms draw on the mature models of traditional finance in compliance and user experience to propel themselves towards larger-scale applications.

In summary, the development of traditional financial leverage trading platforms over the past 50 years has provided a triad model of “compliance + user experience + product coverage,” which has validated the market value of financial leverage. However, risks of centralization, lack of transparency, restrictions on fund custody, regulatory barriers, and clearing risks have become insurmountable bottlenecks. The rise of blockchain and DeFi precisely addresses these structural issues, proposing new solutions such as self-custody, on-chain verifiability, global accessibility, and dynamic clearing. In the future, the evolution path of leverage trading may no longer be a binary opposition between traditional and emerging, but rather a leap-forward integration and development, propelling the financial market towards a new stage in risk control, transparency, and inclusiveness.

The value of Web3 leveraged trading is not simply about “moving traditional leverage tools onto the chain,” but rather about reshaping the operational logic and industrial division of the derivatives market with decentralized transparency and capital efficiency. The ultimate form will present a dual drive of “the mature experience of traditional finance × decentralized transparency and efficiency”: on one end, it caters to professional users with a seamless interaction and deep liquidity close to CEX, while on the other end, it reconstructs the boundaries of trust and compliance through verifiable rules of smart contracts, self-custody of funds, and global accessibility. To reach this ultimate state, the platform must pass five dimensions simultaneously. The first is user experience, where matching needs to achieve sub-second speeds, Gas costs should be negligible, mobile-first design, account abstraction and one-click cross-chain should hide complexity in the background, allowing both retail and institutional users to enter the leveraged market with minimal cognitive burden. The second is multi-asset integration, truly merging crypto assets and RWA into the same trading canvas: BTC/ETH, US stocks, foreign exchange, and gold are managed under a unified margin framework, positions can migrate across markets and settle net, thus providing higher capital efficiency for risk engines and margin models. The third is fund reuse, which involves unified collateral, multi-market reuse, and the cyclical utilization of staked assets and stablecoins, allowing the same collateral to roll and amplify efficiency across lending, staking, and perpetual contracts, adding partial liquidation, tiered maintenance margins, and incentive hedging to enhance system resilience and reduce liquidity noise during extreme moments. The fourth is the clarification of compliance pathways, providing audited entry and exit points for institutions and high-net-worth funds through license acquisition, regulatory sandboxes, and modular KYC/AML, ensuring “front-end open and inclusive, back-end compliance optional,” reducing institutional friction in a multi-legal environment with a structured design of “protocol layer neutrality, access layer compliance.” The fifth is community and ecosystem, where DAO governance and token economics are not about “airdrop equals growth,” but rather link fee sharing, market-making incentives, risk funds, and protocol revenues to drive positive gaming among LPs, market makers, and strategists, connecting lending, stablecoins, RWA, and clearing networks through open APIs, oracles, and cross-chain infrastructure, forming a compounding ecological potential. According to Grand View Research's forecast, the DeFi market will exceed $231 billion by 2030, and if the proportion of leveraged-related business rises to 20%-25%, it will correspond to a segmented space of $50-60 billion; considering the in-depth overlap of multi-assets and RWA, the actual serviceable market still has the elasticity for external growth. Thus, returning to the present, Web3 leveraged trading is at a turning point of “breakthrough and expansion”: the product engineering and risk management framework accumulated by traditional finance provide a paradigm for on-chain replication and improvement; decentralized transparency, self-custody, and global accessibility fundamentally alleviate issues of centralized counterparties, geographical barriers, and black box problems; while the integration of synthetic assets and RWA determines the differentiation and ceiling of platforms. The portrait of the winner is clear: capturing professional liquidity with performance and mobile experience close to CEX; maximizing capital efficiency through unified collateral and cross-market net settlement; constructing institutional-level compliance fences with licenses and sandboxes; binding LPs, traders, and developers in a long-term collaboration with a tokenized risk-reward closed loop. When the two curves of technology and compliance intersect in the coming years, Web3 leveraged trading will not only be the online substitute for traditional derivatives but will also be the “price and liquidity engine” of a new generation of global multi-asset infrastructure. This will be a systemic reconstruction from the paradigm of trust to the efficiency of capital turnover, and the core battleground for the integration of DeFi and TradFi.

2. Analysis of the Web3 Leveraged Trading Track

In the rapid expansion of decentralized finance, leveraged trading, as one of the most attractive and risky financial instruments, is undergoing a new round of reshaping. In the past, centralized exchanges almost monopolized the derivatives market, but with the improvement of the Ethereum ecosystem and the performance of various public chains, a large number of high-frequency trading and leveraged speculation demands that originally relied on centralized platforms are gradually migrating to DeFi. Today, decentralized leveraged trading has formed several major camps, represented by the order book model of dYdX, the liquidity pool model of GMX, the high-performance matching model of Hyperliquid, and the multi-asset synthetic model of Avantis. The rise of these platforms has not only promoted the prosperity of the DeFi derivatives market but also showcased different technical paths and competitive logics, laying the groundwork for the evolution of future patterns.

dYdX is a “pioneer” in this field, having almost redefined the possibilities of decentralized leveraged trading by the standards of centralized exchanges. The platform supports over 200 markets, with a maximum leverage of 50 times, and its cumulative trading volume has long surpassed $200 billion. After upgrading to version V4 in 2024, dYdX will migrate its core matching engine to a Cosmos independent chain, achieving a fully decentralized order book architecture, which is regarded as a milestone transformation. Unlike the automated market maker (AMM) model, dYdX's order book design provides deep liquidity and lower trading costs for professional traders and institutional users. Its tiered fee structure caters to both small users with a zero-threshold experience and large funds with discount incentives. For users relying on high-frequency trading and refined hedging, dYdX's model approaches a centralized experience while retaining the transparency and self-custody characteristics of blockchain. However, this model also faces challenges. The order book matching requires extremely high performance from the chain, and even with the reliance on the Cosmos independent chain, its speed and stability still struggle to compete with top centralized exchanges like Binance and Bybit. Moreover, the complexity of order book trading increases the learning threshold for retail users, making it less intuitive than the AMM model. Therefore, dYdX's strategic direction is to maintain professional liquidity while continuing to strengthen community governance and user education, gradually establishing its position as a “specialized on-chain derivatives exchange.”

In contrast, GMX has taken a completely different route. As one of the representative platforms for DeFi perpetual contracts, GMX's core innovation is the introduction of the GLP liquidity pool mechanism. Platform users form a counterparty relationship with the liquidity pool, which acts as a market maker. Traders open positions on the platform, with profits and losses directly linked to the liquidity pool. Supported assets include mainstream tokens such as BTC, ETH, AVAX, etc., with leverage up to 100 times. As of now, GMX's cumulative trading volume has exceeded $235 billion, with over 669,000 users. GLP holders earn trading fees and funding rate shares by taking on counterparty risk, with an annualized return rate consistently maintained in the range of 10%–15%, making it highly attractive. The innovation of this model lies in its effective reduction of reliance on external liquidity, allowing liquidity providers to naturally possess market maker functions while spreading risks through a multi-asset pool. However, this model also has structural vulnerabilities: in extreme market conditions, the liquidity pool may face significant losses, and LPs may face the risk of capital loss. Additionally, although GMX provides a certain level of liquidity depth, price impact and slippage remain quite pronounced during sharp fluctuations. GMX's long-term potential lies in community-driven token economics, where GMX and GLP holders can not only share profits but also participate in platform governance together. This mechanism of “symbiosis between traders and liquidity providers” enhances user stickiness and promotes the continuous expansion of the ecosystem.

If dYdX represents the specialized “order book faction” and GMX represents the innovative “liquidity pool faction,” then Hyperliquid is the “new overlord” centered on speed and performance. Hyperliquid has captured over 80% of the decentralized perpetual contract market in a short time, almost reshaping the industry landscape. The platform supports over 150 assets, with a leverage cap of 50 times, and boasts sub-second trading speeds; its performance has approached or even surpassed that of mainstream centralized exchanges. This high-performance matching engine has attracted a large number of high-frequency traders and quantitative funds, seeing it as an ideal battlefield in the decentralized market. Hyperliquid's success lies in precisely addressing the performance gap between CEX and DEX, providing on-chain transparency and self-custody of funds while achieving execution speeds comparable to traditional exchanges. However, it also has significant shortcomings. Its product layout is still not diverse enough, with almost all offerings currently concentrated on perpetual contracts, lacking diversified products such as options and structured derivatives; at the same time, its risk control mechanism has not been fully tested in extreme market conditions, and how to balance liquidation efficiency and user safety in the event of severe market fluctuations remains unknown. Nevertheless, Hyperliquid has already become the representative of the “speed faction” in current DeFi derivatives, and its future development direction may involve expanding synthetic assets and enhancing cross-chain compatibility to break through the boundaries of single products.

Finally, Avantis represents the “cross-border faction,” attempting to directly connect DeFi with traditional financial markets and becoming a pioneer in multi-asset synthetic trading. As the first decentralized leverage platform supporting both crypto assets and real-world assets (RWA), Avantis sets USDC as the unified collateral, allowing users to trade cryptocurrencies, foreign exchange, gold, oil, and other assets simultaneously, with leverage ratios reaching up to 500 times. This model greatly enhances capital efficiency, enabling users to achieve cross-market hedging and arbitrage on the same platform. For example, users can open long positions in BTC while simultaneously shorting gold, using cross-asset correlations to construct more complex strategies. The technological breakthrough of Avantis lies in oracle integration and dynamic liquidation mechanisms, featuring a “loss rebate mechanism” and “positive slippage” protection, aimed at balancing the interests of liquidity providers and traders. By the end of 2024, the platform has attracted over 2,000 traders, with a cumulative trading volume exceeding 100 million dollars. Although its scale is still small, its strategic significance is substantial: it not only promotes product innovation within DeFi but also builds a bridge between crypto and traditional finance. Challenges also exist; on one hand, Avantis has a high dependency on oracle data, and any deviation in cross-market price inputs could trigger systemic risks; on the other hand, derivatives trading involving traditional financial assets such as foreign exchange and commodities inevitably faces stricter regulatory scrutiny. This necessitates Avantis to maintain a delicate balance between compliance and innovation.

Overall, the current landscape of mainstream Web3 leveraged trading platforms can be summarized as “multipolarization.” dYdX represents specialization and deep order book liquidity; GMX stands for model innovation and community-driven liquidity pools; Hyperliquid epitomizes ultimate performance and speed advantages; and Avantis symbolizes cross-border innovation and multi-asset integration. The emergence of these platforms does not replace each other, but jointly promotes the expansion of the decentralized derivatives market. The different technological paths they choose reflect the diversification development trend of Web3 in meeting different user needs: professional traders pursue liquidity and efficiency, retail users prefer simplicity and incentive mechanisms, high-frequency quantitative funds focus on performance limits, while cross-market investors value multi-asset integration. The future direction is likely to be the integration of these different models. If dYdX-style order book platforms can further enhance on-chain performance, they will compete and complement Hyperliquid's high-performance model; GMX's liquidity pool mechanism may be adopted by more platforms, but it needs continuous iteration of risk management tools; Avantis's cross-border attempts may trigger more platforms to explore the new narrative of “crypto + traditional assets.” Ultimately, whether decentralized leveraged trading platforms can truly shake the dominance of centralized exchanges depends on their ability to find a new balance among performance, liquidity, security, and compliance. In other words, the landscape of Web3 leveraged trading is rapidly evolving, driven not by a single “decentralization” vision, but by differentiated responses to different trading needs, market gaps, and technological bottlenecks. From dYdX's specialization, to GMX's community orientation, to Hyperliquid's speed, and Avantis's cross-border efforts, the map of decentralized derivatives is no longer a single breakthrough, but multiple paths advancing concurrently. In the foreseeable future, these platforms may each dominate their respective niches, or they may drive the entire DeFi derivatives market towards greater scale and maturity through the integration of technology and models.

3. Innovative Mechanisms of Web3 Margin Trading

The innovative mechanism of Web3 leveraged trading fundamentally reshapes the logic of traditional financial derivatives. It is not merely about moving leverage tools onto the blockchain; rather, it establishes a brand new trading and clearing infrastructure based on smart contracts, on-chain transparency, capital reuse, and multi-asset derivative synthesis. This system is addressing several key bottlenecks of traditional platforms: fund custody risks, clearing delays, fragmentation of cross-market funds, and insufficient transparency, while further unleashing the capital efficiency and global accessibility of leveraged trading. The core innovations are reflected in three dimensions: First is the on-chain pricing and risk. Oracle networks such as Chainlink and Pyth have become the price foundation of the entire synthetic financial system, capable of updating off-chain prices of foreign exchange, commodities, indices, and crypto assets at a frequency of seconds or even milliseconds. Through multi-source aggregation, decentralized node signatures, and anomaly trimming mechanisms, the risks of manipulation and tail shocks are significantly reduced. The greatest value brought by this is that synthetic assets can be mapped to real-world markets on-chain in a secure and trustworthy manner, allowing users to gain price exposure without relying on traditional brokers or market makers' black boxes. Second is the innovation in clearing and risk management mechanisms. Traditional finance adopts 'full liquidation', which can easily trigger liquidity cascades and chain liquidations in extreme market conditions. Web3 platforms tend to introduce partial liquidation, dynamic margining, and incentive hedging in their design. When the risk direction of individual positions contributes to the overall risk balance of the platform, traders can receive fee rebates or positive slippage incentives; when risks become overly concentrated, the system automatically raises funding rates or executes phased reductions in positions to mitigate market shocks. At the same time, insurance funds and adaptive funding mechanisms are introduced as safety valves to help absorb tail risks brought by black swan events. This 'dynamic game + risk sharing' model is making leveraged markets more resilient in extreme environments. Third is the leap in capital efficiency. Under traditional models, if investors operate foreign exchange, gold, and stocks simultaneously, they need to disperse margin accounts across different platforms, leading to inefficiency due to capital idleness and fragmentation. The unified collateral model of Web3 synthetic leverage allows users to operate BTC perpetuals, XAU synthetic, dollar index, or foreign exchange positions within a single margin framework by only collateralizing USDC, ETH, or LST. The risk engine enhances leverage multiples through correlation scaling and netting, with actual capital utilization rates potentially increasing two to three times compared to traditional models. Meanwhile, the income structure of liquidity providers (LPs) has also fundamentally changed, no longer relying solely on market-making spreads, but consisting of 'trading fees + funding fees + hedging incentives', with capital duration and yield stability surpassing those of traditional AMM pools, attracting more institutional-level liquidity injections.

On a strategic level, synthetic leverage is naturally suited for cross-market arbitrage and macro hedging. Users can construct a combination of long BTC + short gold on the same platform to hedge against inflation risk; or establish a structure of long dollar index + short risk assets to respond to a macro environment of a strengthening dollar. This combination does not require transferring funds across platforms and does not involve additional counterparty credit risk, greatly reducing operational friction and time value loss. With the maturity of cross-chain communication protocols and Layer 2 scaling, this integrated experience will further expand into a multi-chain ecosystem, allowing price and clearing instructions to be securely transmitted across different execution layers.

More importantly, the wave of RWA (Real World Asset) tokenization is providing new extensions for synthetic leverage. Boston Consulting Group predicts that by 2030, the on-chain scale of RWA could reach $16 trillion. The on-chaining of assets such as US Treasuries, treasury bills, gold, and commodities allows for the direct generation of synthetic perpetual and futures products without the need for traditional custody and brokerage systems, providing users with standardized leverage tools. Taking Avantis as an example, it incorporates foreign exchange, gold, crude oil, and other assets into on-chain synthetic assets based on price feeds from Pyth and Chainlink, using USDC as a unified collateral. Users can complete cross-market transactions within a matching domain and establish a dynamic balance between traders and LP risk through a “loss rebate + positive slippage” design. This not only meets the needs of crypto-native users but also opens the door for traditional investors to enter on-chain derivatives. The layering of demand is also clear. Risk-averse funds are more inclined to become LPs to obtain stable annual returns of 10-15% and use hedging modules to reduce risk exposure; while risk-seeking funds amplify returns through high leverage and cross-market arbitrage. The platform meets the needs of different user groups through layered products, thus expanding market capacity. Looking at the long term, as account abstraction (AA) and gas-free experiences become widespread, the entry threshold for retail users will be further lowered, driving rapid growth in the user base. From a macro perspective, the innovative mechanisms of Web3 leveraged trading are not only an upgrade of financial instruments but also a reconstruction of global capital infrastructure. At the price discovery layer, oracle systems ensure a close coupling between on-chain markets and real-world markets; at the risk pricing layer, dynamic liquidation mechanisms and hedging incentives provide the system with greater resilience; at the capital turnover layer, unified collateral and capital reuse significantly enhance efficiency. The integration of these three points allows Web3 leveraged platforms to not only compete with CEX in trading experience but also achieve leapfrog advancements in capital efficiency and risk resistance.

Therefore, the ultimate landscape of Web3 leveraged trading will not merely be an “on-chain alternative” to traditional derivatives, but rather an infrastructure that is multi-asset, multi-market, and globally accessible, capable of simultaneously accommodating retail users and institutional funds. Those who can gain a competitive advantage in low-latency execution, strong risk control mechanisms, and compliant access will hold the market share and valuation premium for the coming years. This is both a technological competition and a part of the evolution of financial systems, as well as the core battleground for the fusion of DeFi and TradFi.

IV. Conclusion

Web3 leveraged trading is at a critical point of “breaking the deadlock and expanding”. Its future direction depends not only on technological evolution but also on the collaborative push from the market and regulation. The decades of development in traditional finance have accumulated rich experience in product design, risk control models, and compliance systems, providing an important reference framework for DeFi. However, the centralized custody, regional barriers, and high compliance costs of traditional models cannot meet the demands for global and trustless capital flows. Web3 platforms are innovating through mechanisms such as self-custody of funds, full-chain transparency, and borderless access, to cut into and reshape the core financial scenario of leveraged trading, which is high-frequency and highly capital efficient.

Strategically speaking, the on-chain transformation of synthetic assets and RWAs is opening up a brand new market space. Incorporating U.S. stocks, foreign exchange, and commodities into the on-chain derivatives system not only meets the professional needs of cross-market arbitrage and hedge funds but also provides retail investors with unprecedented opportunities for global asset allocation. Whoever can first achieve a stable oracle mechanism, unified collateral capital efficiency, and a compliant and accessible framework in this field is likely to become the next Binance-level platform.

The portrait of future winners is gradually becoming clearer: they can achieve a seamless experience that approaches or even surpasses that of CEX in front-end interactions while maintaining decentralized security and transparency in backend mechanisms; they can connect multiple assets and markets while actively exploring regulatory pathways to provide a reliable entry point for institutional funds. As technology matures, user experience optimizes, and regulatory frameworks improve, the market scale and strategic position of Web3 leverage trading will rapidly increase. By 2030, this sector is expected to grow into a core growth engine worth hundreds of billions of dollars, representing not only a revolution in financial derivatives but also a key battlefield for the integration of TradFi and DeFi.