Opinion by: Temujin Louie, CEO of Wanchain
Institutional capital does not cross the bridge – it awaits the caretaker. While cross -transactions promised a cryptographic economy without borders and without borders, the regulatory walls increase on each chain.
Emerging standards such as cryptographic asset markets (MICA) in Europe and the travel rule of the Financial Action Working Group (FATF) are no longer optional obstacles. They define who survives in the race for global liquidity.
With an increasing interest in cryptocurrencies, conformity becomes a more significant differentiating than technology.
The dead angles AML persist – bridges are always a preferred tool for whitening
The dead angle in cross-transactions is anti-whipping monitoring (AML). Cryptographic mixers, Dexs, parts exchange services and bridges have treated billions of illicit flows, with recent forensic reports linked to more than $ 21.8 billion in whitewashed assets to these tools. When the funds move from Ethereum to Solana through a decentralized bridge, the AML Analytics heritage loses their path.
The architecture of many bridges allows the potential obscuration of the origin of the portfolio, undermining the monitoring of transactions between networks. Centralized exchanges are faced with mounting pressure to implement cross surveillance, but bridges remain a favorite tool for hackers and money launders – the police are struggling to follow.
Inherited LMA tools are not designed for decentralized bridges
The inherited AML tools does not follow the pace of decentralized innovation of the bridge. Most inherited conformity solutions were intended for exchanges and guards with clear kyc termination points. Decentralized bridge protocols are often lacking in counterpart identification, making the travel rules an open challenge.
While the analysis fueled by AI and intelligent contract plugins now now clusters of wallets and suspicious movements in close time, these tools are still based on centralized data collection standards, such as IVMS 101, which presumes a regulated intermediary on each hop. This is directly in contradiction with the nature without authorization of decentralized bridges and protocols, often leaving a vacuum of conformity between networks.
Crossed transactions reveal a travel rule and jurisdictional contradictions
Crossed transactions expose profound complications during the execution of the travel rule. Global regulators require that Crypto service providers include the details of the origin and beneficiaries in transfers compared to the quantities of threshold – but dex bridges and swaps do not have the logic of compliance, due to their decentralized nature, to surface this data.
European mica regulations provide uniform standards, but only for registered basins and authorized platforms. Apart from that, they do not have a way to follow global transactions. In the United States, the recent office of foreign asset control penalties (OFAC) highlights an appetite for strict application – digital banks now face fines of more than $ 200 million for LMA towers, if they do not comply.
The British regime aims to expand surveillance beyond recording, which makes the AML objective much wider for Defi.
Each jurisdiction has its own rules and systems for monitoring LMA, which makes it difficult to follow the global transactions that occur via cross flows in bridges. We need solutions to serve decentralized systems without authorization in accordance with international regulations. Crypto Analytics services have an important commercial opportunity if they adapt their tools to work transparently with decentralized systems.
We need better AML tools for bridges to obtain a compliance with DEFI
Bridges that comply with LMA are necessary for the regulated deficiency to be viable for traditional use. A handful of projects already include AML tools to comply with most courts. However, unfortunately, AML tools which do not require decentralized protocols to sacrifice their philosophy of decentralization have not yet emerged significantly. DEFI systems will be far from institutions without this type of infrastructure.
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Despite this, institutional actors pilot regulated cross -country colonies with privacy and compliance. The opportunity is for startups to create conformity services in the design of the protocol – those who make it seize the market share as the rules are tightening.
The urgency of self -regulation
There is a narrowed window for decentralized protocols to self -regulate and develop a proactive compliance infrastructure before regulators force closed standards. Some will see this as an existential threat to innovation without authorization – but compliance is to become the only passport worldwide and sustainable partnerships.
What can be controversial for purists without authorization is that cross -conformity is not only a regulatory burden – it is a commercial imperative. Institutions that await on the sidelines could soon dictate the adoption conditions: compliance or exclusion.
Some will oppose the prioritization of LMA rules and regulatory mandates undermines the spirit without permission of crypto. Others will maintain that the anti-private implications for compliance with travel rules make each bridge a low link for surveillance. However, the reality of the market changes – the rules of writing of the courts open the way to institutional capital
Ignoring the compliance of Crosschain is not only risky – it is a disadvantage of the market. The winners of this space will treat compliance not as a check box but as a design principle. This is how the challenge evolves – and how institutional capital finally crosses the bridge.
Opinion of: Temujin Louie, CEO of Wanchain.
This article is for general information purposes and is not intended to be and must not be considered as legal or investment advice. The points of view, the thoughts and opinions expressed here are the only of the author and do not reflect or do not necessarily represent the opinions and opinions of Cointellegraph.
