Hybrid On-Chain/Off-Chain Framework for High-Frequency Trading (HFT) Settlement

Abstract

High-Frequency Trading (HFT) environments demand ultra-low latency, high throughput, and deterministic execution—requirements that traditional Blockchain systems struggle to meet due to computational overhead, network congestion, and block confirmation delays. While fully on-chain settlement offers transparency, immutability, and auditability, it lacks the speed and scalability required for microsecond-level trade execution. Conversely, purely off-chain systems provide superior performance but suffer from limited transparency, fragmented audit trails, and increased vulnerability to manipulation. To bridge these gaps, this study proposes a Hybrid On-Chain/Off-Chain Framework that integrates high-speed off-chain execution with Blockchain-based settlement finality.
The proposed architecture separates latency-sensitive activities—such as order matching, risk validation, and price feed processing—into an off-chain engine optimized for ultra-fast computation, while delegating settlement finalization, commit verification, and audit logging to a permission Blockchain layer. A commit–reveal mechanism, cryptographic hashing, and secure state channels enable synchronized, tamper-resistant data exchange between both layers. The framework significantly reduces settlement latency while preserving the auditability and tamper-evidence inherent to distributed ledgers.
Performance analysis shows that the hybrid model outperforms fully on-chain systems in terms of execution speed and scalability while maintaining regulatory compliance and ensuring robust security. Despite challenges related to synchronization, oracle reliability, and regulatory integration, the hybrid approach presents a viable pathway toward next-generation HFT settlement infrastructures. Future developments include AI-assisted anomaly detection, standardized regulatory smart contracts, and globally interoperable DLT-based clearing mechanisms.