# 📈 2.1 The Evolution of Prop Trading

**Proprietary trading** refers to firms trading financial instruments using their own capital rather than clients’ funds. Historically, prop desks within banks used their balance sheets to speculate, but after the 2008 financial crisis and the introduction of regulations like the Volcker Rule, many banks shut down or spun off these operations. This shift gave rise to independent prop firms that fund traders who meet specific evaluation criteria. Traders benefit from access to substantial capital and advanced tools, while firms receive a portion of profits.

However, this model has several drawbacks:

1. **Opaque processes:** evaluation rules, funding decisions and profit splits are often hidden, leading to arbitrary account closures and withheld profits.
2. **Centralised control:** a small group of owners controls platform decisions, leaving traders without a voice.
3. **High fees and barriers:** evaluation packages can cost hundreds or thousands of dollars, and firms may demand a large personal deposit or require high leverage.
4. **Limited assets:** many firms restrict trading to a few instruments (e.g., forex, equities, futures), leaving out emerging asset classes like crypto or tokenised RWAs.
5. **Risk of scams:** some prop firms vanish with client funds or operate in legally grey areas, eroding trust.

Despite these issues, the prop firm industry continues to grow because it offers traders capital without directly risking their own money. The challenge is to redesign the model to preserve its benefits while removing systemic flaws. <mark style="color:$primary;">**EOSI Finance**</mark> seeks to achieve this by decentralising funding, codifying rules on-chain, and empowering the community through the emergence of blockchain technology which opens the door to decentralising this model; instead of one entity supplying capital and making decisions, a community of token holders can collectively fund and supervise traders through smart contracts. \
The first of it's kind.


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