Compliance is the rite of passage for the underground economy.

Written by: Zuo Ye

In 2017, Binance quickly became the world's number one through regulatory arbitrage, but by 2025, the more liberal Hyperliquid will only account for 15% of Binance's market share. And does RWA, as the source of underlying assets for DeFi, really have room for regulatory arbitrage and a future of scaling?

Compliance became the main theme in 2026. Offshore exchange Binance officially landed on the UAE ADGM, Coinbase passed the Genius Act and the Clarity Act in two cities, and even the Eastern power tested the waters of RWA regulation in principle.

We are at a clear inflection point. Blockchain will not replace the Internet, Web3 is just a self-righteous scam, and the listing effect ended with Binance's purchase of Bitcoin. However, Hyperliquid is making efforts in precious metals and prediction markets, and it is the right time for RWA, represented by coins (stablecoins), stocks (US stocks), bonds (US bonds, subprime bonds), and funds (hedges, active funds), to be listed on the blockchain.

Against this backdrop, compliance transcends the simple ritualistic function of "holding a small country's license to benefit a large country," evolving into a real framework for the separation of trading, clearing, and custody. When the industry breaks through scale limitations, regulatory benefits will become profitable.

In the silence, compliance not only signifies the end of the last era of rapid growth, but also reveals that there are always arbitrage opportunities in certain sectors where development can be exchanged for scale.

Let's start with exchanges and take a look at the economic considerations beyond compliance.

Civilized Wall Street, Mad Barbarians

Savage conquerors, according to an eternal historical law, are themselves conquered by the higher civilization of the subjects they conquer.

In 2022, FTX collapsed dramatically, and Wall Street also had the idea of ​​taking over the exchange track. Citadel Securities, Fidelity and Charles Schwab collaborated to launch EDX Markets in Singapore, operating under the Singapore MAS compliance framework in accordance with the principle of separation of trading and custody.

With the SEC, under Gary Gensler's leadership, relentlessly pursuing Binance, Coinbase and Kraken were forced to remain confined to the US spot market, unable to venture into higher-end markets such as futures and options. At that time, the market had high hopes for EDX Markets.

Barring unforeseen circumstances, we should witness Binance's downfall, much like BitMEX after March 12, 2020. But history never repeats itself, and Hyperliquid is the real winner. The deteriorating Binance and Coinbase, which continues to shrink into the US market, are not the protagonists of the next act.

To understand the experiences of successful people, one must learn from the lessons of those who failed.

Since its founding in 2017, Binance has done at least two things right:

• While actively embracing overseas expansion, we continue to accept users from mainland China, with transaction volume and user scale acting as a seesaw.
• In 2019, it launched IEOs (Initial Exchange Offerings), creating a real wealth effect before the DeFi Summer.

Following the 9.4 ban, providing trading services to users in mainland China has fallen into a "gray area." The third clause is directly aimed at trading platforms, requiring them not to provide services such as quoting, matching, and clearing. If we refer to He Yi's response to Mu Tou Jie, Binance would respond by saying "we do not provide services to users in mainland China."

From 2017 to 2019, Binance firmly established itself as the world's number one offshore exchange. From 2020 to 2022, Binance filled the contract market gap after BitMEX. From 2022 to 2024, Binance dominated the global altcoin market. The listing effect is equivalent to the Binance listing effect.

After entering 2025, Binance officially took over the compliance framework of Abu Dhabi General Motors (ADGM) in the UAE, dividing itself into three entities: trading, clearing, and over-the-counter (OTC), but still retaining Binance's unique arbitrage features.

In particular, compliance did not prevent Binance's listing team from listing Meme. Furthermore, ADGM and the entire UAE financial system simply do not have the ability to regulate a behemoth like Binance. Just look at the Bahamas's powerlessness against FTX Global.

Image caption: "Passing the civil service exam is the only way to get a job." Image source: @binance @okx

Coinbase was the most compliant after the FTX crash, but this compliance stemmed from Trump's continued reforms of the SEC, CFTC, and OCC after taking office, requiring them to adopt more crypto-friendly regulatory measures.

Broadly speaking, the SEC is responsible for reviewing whether a token meets the definition of a security, the CFTC regulates derivatives trading, and the OCC regulates banking licenses used to conduct custody business. There is no "crypto exchange license" in the United States similar to ADGM; there are only regulatory scopes based on business type.

Image caption: Regulatory progress; Image source: @zuoyeweb3

The development of this regulatory framework is still underway, but it is certain that Coinbase will shape the U.S. compliance framework, covering all aspects of listing (spot, futures), trading (spot, futures), custody (retail, institutional), clearing/settlement (fiat, crypto), and auditing (technology, assets)/insurance (fiat, crypto).

Binance's license under ADGM is completely different from Coinbase's license in the United States, which falls under the actual jurisdiction of regulatory authorities.

Regulation is about clarifying the rules, not protecting the interests of retail investors. For example, institutional clients enjoy bankruptcy remoteness in Coinbase's custody business, and the corresponding entity is Coinbase Custody Trust Company.

However, funds deposited by ordinary retail investors into Coinbase are linked to Coinbase Inc. If the funds are fiat currency, they may be protected by the corresponding bank's FDIC deposit insurance. But crypto assets are very likely to suffer the same fate as FTX.

For example, FTX token FTT buyers are considered equity owners and are not strictly protected in terms of claims. Coinbase is similar, the only good news being that Coinbase did not experience a bank run.

Hyperliquid enters the RWA field "without a license".

Human progress will no longer resemble the terrifying pagan gods and monsters, where only the heads of the murdered can be used as goblets to drink sweet wine.

Regulatory arbitrage persists. In the crypto asset trading sector, EDX's American counterpart, Hyperliquid, also started in Singapore and is encroaching on Binance's global market and Coinbase's US market.

This can be called "second-order arbitrage," where Binance profits from global regulatory oversight, and Hyperliquid profits from Binance.

Image caption: CEX and DEX are neck and neck. Image source: @LorisTools

Hyperliquid blocks US IP addresses, but this blocking has no real effect. To put it in perspective, it's almost impossible for US users to open an account on Binance's global site; they can only use Binance US.

Coinbase initially allowed US users to conduct contract trading, but the volume of business was practically negligible. Thus, in a strange turn of events, Hyperliquid seized some European and American users outside of Binance and Coinbase to conduct derivatives trading.

However, it should be noted that Hyperliquid's arbitrage strategy cannot replicate Binance's growth miracle, nor can it replicate Coinbase's dominance of the US compliant market. It can only capture about 15% of Binance's market share.

As Hyperliquid expands into non-traditional businesses such as precious metals and prediction markets, its impact on global financial markets is gradually increasing. If the United States can regulate Binance and Tornado Cash, then actions against Hyperliquid would not encounter resistance from Singapore.

Ultimately, most "underground economy" models cannot enter the field of large-scale operation. Taking USDT as an example, its issuance reserves and circulation restrictions are becoming increasingly strict. The fact that the Bybit hackers let USDT go and the freezing of black USDT after the Huiwang case are clear evidence of this.

• Huawang can support the underground economy of Cambodia and even Southeast Asia, but Cambodia cannot afford the cost of being placed on the FATF's money laundering "grey list".
• Binance can support the BNB on-chain economy, which is dominated by altcoins, but the squeeze between China and the US prevents Binance from accessing higher-quality trading assets.

This is essentially the advantage of low regulatory costs that the United States possesses. The core of the US's economic sanctions against other countries is not the US dollar and the US military. The United States is the world's largest single consumer market and the most important financial market. Once Cambodia and Binance are cut off from the United States, the same fate will befall North Korea.

Therefore, Binance is paying a high price to comply with regulations, so it's only a matter of time before Hyperliquid also becomes compliant.

This leads to an extended question: can RWA replicate the trajectory of the crypto asset trading sector, that is, retain its position through regulatory arbitrage and develop its business within a compliant framework?

This is based on the premise that Hyperliquid is almost impossible to surpass Binance in the field of crypto asset trading, and almost impossible to surpass Coinbase in terms of compliance.

If we were in 2017, CZ himself probably wouldn't have believed that CEX was the future. Looking ahead, stamps and coins, P2P, O2O, and ofo were all just passing fads. Looking back, DeFi mining, NFTs, GameFi, and SocialFi all fizzled out.

Therefore, Binance and BNB should be understood as project-based, and their halo effect is constantly extended by the wealth effect. They should have ended hastily, like one financial bubble after another.

However, under the network effect, the network effect of transactions breaks free from the constraints of crypto assets and enters all financial fields, thus encountering RWA in a broad sense. Stablecoin interest generation impacts CBDC, and asset-based securitization will sooner or later be tokenized.

For example, the regulatory guidelines from the University of Tokyo are essentially a spillover effect of the US's impact on the financial sector, and will rewrite on-chain finance in a peculiar way.

Image caption: Flowers bloom inside the wall but their fragrance wafts outside.

Caixin's interpretation of the new regulatory measures for Southeast University is divided into four categories: external debt, equity, asset securitization, and others. However, in my view, the only meaningful entry point is the tokenization of securities, which aligns with the reform direction of "all asset securitization." Regarding this:

• The competent authority is clearly the China Securities Regulatory Commission (CSRC).
• Issuance requires approval from the China Securities Regulatory Commission.
• Issuance from within China to overseas markets is only permitted.

Furthermore, this guidance on security tokenization explicitly states that both rights and returns must comply with regulations. This corresponds to the SEC's encouragement of the evolution of native "stock tokenization," while the situation of overseas RMB stablecoins, foreign debt, and funds is rather unique.

• Offshore RMB stablecoin business has always existed, and USDT issuer Tether is also involved, but it lacks practical use and the business volume is very small;
• Overseas bond issuance and fund on-chaining have already been carried out in practice, and are completely segregated from domestic assets, issuing to overseas clients. This is unrelated to this guideline.

This regulatory action involves the overseas issuance of domestic assets, which essentially emphasizes this separation: overseas assets remain overseas, and domestic assets remain domestic. Only when the two overlap do they need to enter the regulatory process.

In the current RWA field, China and the United States have already begun a land grab, and this liquidity spillover onto the blockchain is enough to rewrite the current financial landscape.

Conclusion

The fate of an industry certainly depends on its own efforts, but the course of history must also be taken into account.

CZ himself may not believe that CEX is the future, or even that Bitcoin is just a stage in a new form of pyramid scheme, which will quickly become a historical term that disappears with the wind, like P2P lending and predatory lending.

But no one expected that CEXs would survive until 2026, with Hyperliquid venturing into new forms such as precious metals and prediction markets, yet still failing to surpass Binance.

If Hyperliquid were to join RWA, would they be able to reach the other side this time?