The Future of Secondary Markets: Standardized vs. Proprietary Token Protocols

Standardized protocols like ERC-20 create network effects and composability but sacrifice performance. This is the liquidity fragmentation problem, where assets like wBTC and USDC exist on dozens of chains but require bridges like Across or Stargate to move, creating a poor user experience.

Proprietary token standards like SPL optimize for a single execution environment, like Solana, delivering superior throughput and lower fees. The trade-off is vendor lock-in and isolation from the broader Ethereum-centric DeFi ecosystem, limiting their utility as cross-chain money.

The winning model will dominate capital efficiency. Standardization wins if cross-chain interoperability, driven by intents via UniswapX or CowSwap, becomes seamless. Proprietary models win if users prioritize raw performance within a single, dominant ecosystem over universal liquidity.

Proprietary protocols create moats by embedding unique logic directly into token contracts, as seen with ERC-4626 vaults or ERC-6909 modular accounts. This design locks liquidity and user flows into a single application, sacrificing composability for control.

Standardized protocols unlock composability by creating shared infrastructure, like ERC-20 for fungibility or ERC-721 for NFTs. This approach fragments liquidity across many interfaces but creates a larger total addressable market for the underlying asset.

The winner dictates market structure. A world of proprietary tokens resembles a collection of walled gardens, while a standardized world enables permissionless innovation, similar to how Uniswap V3 concentrated liquidity became a public good for all aggregators.

Evidence: The dominance of ERC-20 and ERC-721 standards proves that network effects from standardization outweigh the value capture of proprietary formats, forcing even major players like Blur to build on top of the public NFT standard.

Proprietary protocols create regulatory moats. A protocol like UniswapX for intents or dYdX's v4 orderbook uses a bespoke token that is inseparable from its application logic. This integration makes the token a potential security under the Howey Test, but also grants the issuing entity legal grounds to control secondary market access and enforce KYC.

Standardized tokens enable permissionless composability. An asset built on ERC-20 or ERC-721 is a dumb, standalone commodity. This legal ambiguity is its superpower, allowing it to trade freely on any venue from Coinbase to a Uniswap V4 hook. The regulatory risk shifts from the issuer to the secondary venue, creating a liquidity advantage that proprietary tokens cannot match.

The winning model abstracts legal risk. The future is a hybrid stack: a proprietary intent-sourcing layer (e.g., Across, 1inch Fusion) that routes to a settlement layer of standardized tokens. This separates the regulated broker-dealer function from the permissionless settlement asset, maximizing both compliance and liquidity. Arbitrum's STIP grants demonstrate chains will pay for this liquidity.

Proprietary protocols fragment liquidity. Each new application-specific token standard, like a gaming asset on ImmutableX, creates its own isolated pool. This forces users and capital into walled gardens, increasing friction and reducing overall market efficiency.

Universal standards aggregate value. A single, widely-adopted token standard like ERC-20 or ERC-404 creates a composable financial layer. This allows assets to flow seamlessly between DeFi protocols like Uniswap, lending markets like Aave, and across chains via bridges like LayerZero.

Interoperability drives developer adoption. Building on a proprietary standard requires convincing an entire ecosystem to adopt your niche tooling. Building on a universal standard like ERC-20 gives you instant access to the entire Ethereum toolchain and user base.

Evidence: The total value locked in cross-chain bridges exceeds $20B. Protocols like Circle's CCTP for USDC and Wormhole's generic message passing demonstrate the market demand for fungible, chain-agnostic assets, not proprietary silos.

Standardization wins for liquidity. A universal token standard like ERC-20 created the DeFi ecosystem. For secondary markets, a similar standardized settlement layer (e.g., a shared intent-based network like UniswapX or Across) will aggregate fragmented liquidity, reducing costs for all.

Proprietary protocols win for yield. Vertically integrated models like Pendle or Ethena control their entire stack from issuance to AMM. This vertical integration enables complex yield strategies that a generic standard cannot replicate, creating defensible moats.

The duality is permanent. The market splits between commoditized liquidity infrastructure and specialized financial products. This mirrors TradFi's split between public exchanges (NYSE) and private OTC desks, each serving distinct user needs and risk profiles.

Evidence: TVL divergence. Pendle's $6B+ TVL in yield-tokenizing vaults demonstrates demand for proprietary structures, while the rapid adoption of intents by CowSwap and 1inch shows the pull towards standardized, gas-optimized settlement.