Opinion: Annabelle Huang, co-founder and CEO of Altius Labs

For centuries, the world’s traders and speculators have pursued one thing above all else: alpha. Not just returns, but also an advantage – a structural advantage that allows them to capture value before everyone else. Nowadays, they have achieved this through speed and precision, often beating the competition by mere nanoseconds.

However, as markets migrate to blockchain rails, the nature of alpha itself changes. The future alpha version will not be driven by locating servers next to the headquarters or shaving nanoseconds from fiber optic routes. Rather, it will emerge from the exploit of onchain infrastructure in unique ways.

High-frequency trading (HFT) companies have built empires through physical ingenuity. Jump bought property near the Chicago Mercantile Exchange data center in Aurora so it could receive and transmit data faster than its competitors. Beyond location, FPGA chips, custom hardware, and private fiber networks all serve the same purpose: to provide trading companies with as many additional benefits as possible.

In that world, alpha was a hardware arms race. Companies that designed faster connections and smarter routing dominated. As commerce increasingly moves to blockchain-based environments, physical constraints are disappearing. Given the decentralized structure, there is no co-location in decentralized finance. You can’t build your company right next to, say, a Uniswap server, and even if you could, it wouldn’t matter.

Mastering digital infrastructure

Today’s validators, sequencers, and block producers are the blockchain equivalents of the senior matching engines on the CME or Nasdaq. Companies that can influence or optimize this layer will gain the structural advantage that once came from having customized commercial equipment.

Mastering up-to-date onchain mechanics can take many forms. For example, using the same HFT tricks on a centralized exchange (CEX) and running validators for a decentralized exchange (DEX) allows you to exploit price differences between the two platforms before the public has a chance to notice them.

Latency arbitrage also has its counterpart on the blockchain in the form of maximum extraction value (MEV), which is the profit opportunity created by reordering, including or excluding transactions within a block. In both cases we are talking about a kind of front-running, but the methods are based on a completely different infrastructure. Protocols like Flashbots and Skip have formalized MEVs into structured, auction-based systems that look eerily similar to clever order routers in stock trading.

As a result, high-frequency trading companies have the opportunity to own the rails themselves. In classic markets, they had to lease access to exchanges, paying fees for colocation and data feeds. In Onchain, they can modernize the mechanics of the entire system by running validators, designing low-latency remote procedure call nodes, participating in governance, or creating sequencers for summaries, to name just a few ideas.

Related: Institutional adoption faces blockchain bottleneck

Alpha comes from building and optimizing the infrastructure that everyone else depends on, not just using it.

In many respects, this may blur the current line between market maker, exchange and infrastructure provider. Companies that understand how to operate in all three layers will shape the microstructure of the supply chain market for decades to come. This is an area where high-frequency trading firms really have an advantage because they already have the engineering culture, capital and risk framework to navigate this type of terrain.

The first players are experimenting

The bridge between high-frequency trading and blockchain infrastructure is already being formed, and the names associated with it are familiar.

Jump has already leveraged its HFT expertise to build a high-performance validator client for Solana called Firedancer. Another Jump-backed project, DoubleZero, aims to monetize a global private fiber optic and undersea cable network that Jump has built in-house to reduce latency and escalate blockchain bandwidth beyond what the public Internet offers.

Meanwhile, Cumberland provides real-time cryptocurrency market data for the Pyth Network, Oracle’s decentralized network. The company also supports crypto infrastructure projects through its Web3 incubator, Cumberland Labs.

Jane Street recently hired Paul Smith, former head of infrastructure architecture at Crypto Unicorn Copper. This may indicate that the HFT company – which bought and sold cryptocurrencies (including stablecoins) worth over $110 billion in 2024 – is interested in developing its own blockchain infrastructure capabilities.

It may seem like HFT firms are teetering on the edge, but these efforts point to a profound shift: Instead of waiting for the blockchain space to “grow,” Wall Street’s most technically advanced firms are actively helping it mature.

Why make the effort?

Of course, there is still one major obstacle: size. Despite all the innovations in cryptocurrencies, their markets remain compact compared to classic finance. Nasdaq alone regularly processes more than $500 billion in transactions per day. The entire cryptocurrency market was worth $230 billion at its peak in October. For a trading company that trades tens of billions a day, it’s tough to justify the economics of moving significant capital into onchain markets… at least for now.

This restriction is ephemeral. Stablecoins are consistently providing real liquidity to blockchain systems, and tokenized real-world assets (RWAs) promise to bring much more. Bond settlements, cross-border payments and corporate cash management – when real financial activity moves on-chain, the liquidity ceiling disappears. Over the course of a decade, we could count on trillions of daily value transfers.

Skeptics will argue that blockchain still lacks the maturity, compliance and reliability that institutional finance requires. They said the same about electronic trading in the 1990s. Back then, floor traders ridiculed early algorithmic systems as toys. Two decades later, almost all commerce is conducted electronically, and the companies that rejected this change no longer exist.

You know what they say about historical rhyming. The smartest players on Wall Street already recognize this tune. The next alpha frontier isn’t hidden in a Chicago data center or in a cable running under the Atlantic. It is embedded in the blockchain space – in the way it is produced, ordered and monetized.

Opinion: Annabelle Huang, co-founder and CEO of Altius Labs.

This opinion article represents the author’s expert opinion and may not reflect the views of Cointelegraph.com. This content has been editorially reviewed for clarity and relevance. Cointelegraph remains committed to limpid reporting and the highest journalistic standards. We encourage readers to conduct their own research before taking any action with the company.