How Crypto Eats Wall Street

I want Wall Street's assets working in our wallets, in our applications, on our chains. We're supposed to celebrate crypto becoming Wall Street's back office, but onchain we deliver investors more control over how to use the assets they own. Building that starts with updating KYC and credentials so investors can selectively share evidence that issuers and applications can independently verify. Once we do, the benefits of onchain finance will start hoovering up Wall Street instead of the other way around.

The fear is that Wall Street will eat crypto: institutions will adopt our technology, require KYC, and confine us to their investment apps. Reusable credentials give crypto builders a way to compete for that business. An eligible investor should be able to hold a fund token in her wallet, trade it through a covered AMM, or use it as collateral in a lending application. Asset managers supply the assets, while crypto and fintech developers compete to provide the services around them. And asset managers are worth competing for. They have been paying intermediaries a cut of every dollar they distribute for years. They want to reach more investors, and they want those investors to get more out of what they hold. Onchain rails do both. What they can't skip is their own compliance, and that's the tech we're building at Opacity.

I understand why KYC sounds like surrender when the onshore offer is a walled garden, and the offshore is trust-me-bro synthetics where you pinky promise not to trade with sanctioned actors. Onshore, the issuer's transfer agent whitelists the wallets, and the token trades among those wallets behind the gated venue. The token is onchain, but the institution still decides where you can use it. If every use depends on that venue, investors remain limited to the services the institution chooses to offer. Moving the balance onchain has done little to change their options. If we don't solve this, tokenization ends up with the market structure we already have, padding Wall Street's back office margins. Your assets will just stay behind someone else's login.

Leave the traditional venue behind

The asset manager's compliance obligation has to travel with the token at every transfer and transaction. A model that checks investors at mint and redemption, then lets tokens circulate without checking each new holder leaves the manager unable to show that each new holder is eligible. The token has to be able to check who holds it, wherever it goes. More trading volume does nothing to resolve that.

So the eligibility checks travel with the asset. Applications verify each investor's credentials, and the asset's own contract enforces the eligibility rules. Any wallet or contract receiving the token has to meet the conditions for holding it, and the same checks run when an application transfers it again.

That is what lets a fund token leave the manager's own venue. The checks continue wherever the asset moves, so the token can circulate without the manager losing the compliance it owes. To get Wall Street's assets en masse, developers build applications that respect the rules riding with the token, and investors choose among the applications that do.

The above scenario and the one laid out by recent SEC guidance on tokenized securities complicate this system. Each TSV and fund needs to maintain evidence that their investors are eligible. Without that evidence, the parties involved must either repeat the review or reject the investor.

Consider a saver outside the United States who buys a yield-bearing fund token and holds it in her wallet. She wants to borrow against it in a lending app. In this example, the fund permits the lending contract to hold the token as collateral, the app supports the token, and she meets both sets of eligibility requirements.

The lending app requires evidence of her identity and country of residence. Her wallet supplies the fund's approval, but that approval contains no evidence the lending contract can independently check against those requirements. It will reject the deposit. Making that evidence reusable lets the onchain builder compete for her business while fulfilling its legal obligations.

Reusable credentials let applications check the evidence

KYC should produce a credential containing evidence that participating issuers and applications can independently verify. Not a credential that yet another third party says is credible, but real proof that anyone in the system can check its authenticity and provenance. The investor can then establish her eligibility at another application without submitting the same documents for another review.

The design starts with records she can access at their sources. When she logs in to her bank, the bank serves information through an authenticated connection. A technique called zkTLS lets her produce proof that the bank served a particular answer through that connection. The proof authenticates the source of the answer; the bank's record can still be wrong. Comparing it with independent sources, such as authoritative identity records and utility account records, can reveal discrepancies.

Software checks multiple corroborated facts and produces a credential tied to a wallet she proves she controls. The credential includes evidence of which checks ran and that they used the records authenticated by the source proofs, but not the personal data itself. She can selectively share the evidence an application requires, and that application can verify it against its own eligibility rules.

The system must keep the credential current through required updates, including sanctions screening, and revoke it when its conditions no longer hold. Each participating application checks the credential's current status. Reusing evidence still requires ongoing checks, but it saves the investor from starting the same identity review at each application.

With that credential, the saver can complete the deposit. The lending contract verifies her control of the wallet, the credential's current status, and the identity and residency facts it requires. The fund token's contract checks that the lending contract is permitted to hold the asset. Once both sets of requirements pass, the lending app accepts her fund tokens as collateral. The parties involved maintain their obligations, and the investor gets access.

She can now obtain funds by borrowing against her investment rather than selling it. That gives her another use for the capital she has already invested, subject to the lender's collateral requirements, interest charges, and liquidation risk. A crypto lending application provides the service, using an asset the fund issued. The builder gains a customer, and she never has to leave her wallet.

The fund's ownership restrictions still apply. If the loan is liquidated, the contracts must ensure that the buyer is also eligible to hold the tokens. The lending app can offer a service around the asset because it can verify the investor and enforce the conditions governing the collateral.

Scaling global access to finance

As more funds and applications accept the credential, the investor can use the same identity evidence with each of them. Every fund retains its own eligibility rules. Each participating fund can check the existing evidence instead of paying to collect and review the same records again.

Crypto's distribution advantage is that thousands of compatible wallets and applications can offer access to the same asset. A fund can reach eligible investors across countries through services those investors already use, subject to the rules in each market. A developer can support assets from participating issuers without repeating every investor's identity review.

It scales too. As more funds and applications participate, investors have more financial products and more ways to use them through the same infrastructure. More products and front-ends, more investors. Global finance doesn't make sense behind a few app logins. It's global, distributed, decentralized. What's new is we can verify that the builders are fulfilling their verification obligations, which makes investors more confident at every level of the system.

New tools for an onchain world

Reusable credentials and asset-level checks give crypto builders compliance tools for competing to distribute and service regulated assets. Regulatory permission to offer those services remains necessary. Where regulators allow builders to compete under rules these systems can enforce, asset managers can reach investors through crypto's distribution network, and investors can put those assets to work across compatible markets.

This is how crypto eats Wall Street: by winning the business of distributing and providing services around its assets. If Wall Street wants access to that distribution, it can bring its financial products to our wallets, our applications, and our chains. Investors get good financial products through thousands of front-end applications, and crypto builders compete to give them better ways to invest, trade, and borrow.