The next alpha is Onchain.

Comment by: Annabelle Huang, Founder and CEO of Altius Labs

For centuries, the world's traders and speculators have pursued one thing above all else: alpha. Not just a return, but an edge – a structural advantage that allows you to capture value before anyone else. Nowadays they achieve this with speed and accuracy, often beating the competition by nanoseconds.

As markets migrate to the blockchain, however, the nature of alpha itself is changing. Future alpha won't come from coordinating servers next to switches or shaving nanoseconds off fiber lines. Rather, it emerges from leveraging the onchain infrastructure in unique ways.

High-frequency trading (HFT) firms have built empires on physical intelligence. Leap bought real estate from Chicago's Mercantile Exchange data center so it could receive and transmit data faster than its competitors. Beyond the environment, FPGA chips, custom hardware, and private fiber networks all served the same purpose: to give businesses as many additional benefits as possible.

In that world, it was a hardware arms race. Companies that have developed faster connections and smarter routing have come out on top. As commerce increasingly moves to blockchain-based environments, physical barriers will dissolve. There is no common ground in decentralized finance, given the decentralized configuration. You can't build your organization next to a Uniswap server, and even if you could, it wouldn't matter.

Controlling the digital infrastructure

Today's validators, serializers, and block producers are the blockchain equivalent of the old correlation engines at CME or Nasdaq. Organizations that can leverage or leverage this layer will gain the structural edge that once came with custom business hardware.

Learning the new onchain mechanics can take many forms. For example, using the same HFT methods on a centralized exchange (CEX) and running validators on a decentralized exchange (DEX) allows you to exploit price gaps between the two platforms before the public has a chance to see them.

Latency arbitrage also has its own blockchain analog in maximum extractable value (MEV), which is the profit potential generated by reordering, including or excluding transactions within the block. We are talking, in both cases, about the same front-end, but the methods are based on completely different foundations. Protocols like Flashbots and Skip have turned MEV into structured, bid-based systems that look very similar to modern stock trading routers.

The high frequency is that businesses have the opportunity to own and use the railroads. In traditional markets, they had to rent access to an exchange, paying a fee for shared location and data feeds. Onchain, you can improve the overall mechanics of the system by running validators, designing low-latency remoting call nodes, participating in administration, or creating sequences for a few.

Related: Institutional adoption of blockchain faces bottlenecks

Alpha comes from building and optimizing the infrastructure that everyone depends on, rather than exploiting it.

In many ways, this could blur the old boundaries between market makers, exchanges and infrastructure providers. Organizations that understand how to operate at all three levels will shape the microstructure of the onchain market for decades to come. This area has a high frequency of business organizations located in this type of landscape as they contain engineering culture, capital and risk frameworks.

Early travelers are trying

The bridge between high-frequency trading and blockchain infrastructure is already forming, and the names involved are familiar.

Leap leveraged its HFT expertise to build a high-performance validation client for Solana called FireDancer. Another project backed by Jump, DoubleZero, aims to monetize a global private fiber optic and submarine cable network that Jump has built in-house to increase blockchain bandwidth beyond what the public internet provides.

Meanwhile, the Cumberland Decentralized Verbatim Network is contributing real-time crypto market data to the Paiz Network. The company supports crypto infrastructure projects through Cumberland Labs, the Web3 incubator.

Jane Street recently hired Paul Smith, former head of infrastructure architecture at crypto unicorn Copper. This may be a hint that the HFT company – which in 2024 bought and sold more than $110 billion in cryptocurrencies (including stablecoins) – is interested in developing its own blockchain infrastructure capabilities.

HFT firms may seem on the cutting edge, but these efforts mark a profound shift: Instead of waiting for the blockchain space to “grow up,” Wall Street's most technically sophisticated firms are actively helping it mature.

Why go through the effort?

Of course, there is still one big obstacle: size. For all crypto innovations, the markets are small compared to traditional finance. The Nasdaq alone regularly transacts more than $500 billion each day. In October, the crypto spot market peaked at $230 billion. For a business that turns over tens of billions of dollars every day, the economics of investing significant capital into onchain markets are hard to justify, at least for now.

That limit is temporary. Stablecoins are steadily injecting real liquidity into blockchain systems, and real-world assets (RWAs) promise to bring much more. Bond settlements, cross-border payments and corporate cash management – ​​when real financial activity moves down the chain, the liquidity ceiling disappears. Over the course of a decade, we can look at trillions in daily price movements.

Skeptics argue that blockchain still lacks the maturity, compliance and reliability required by institutional finance. They said the same thing about electronic commerce in the 1990s. Back then, floor traders derided early algorithmic systems as toys. Two decades later, nearly all commerce is electronic, and companies that resisted the shift no longer exist.

You know what they say about the melody of history. The smartest players on Wall Street already know the tune. Alpha's next frontier isn't hidden in a Chicago data center or a cable running under the Atlantic Ocean. Included in Blockspace – How to Produce, Order and Monetize.

Comment by: Annabelle Huang, Founder and CEO of Altius Labs.

This opinion article presents the professional view of the contributor and may not reflect the views of Cointelegraph.com. While this content has undergone editorial review to ensure clarity and relevance, Cointelegraph remains committed to transparent reporting and maintaining the highest journalistic standards. Readers are encouraged to do their own research before taking any action related to the company.