Opinion by: Temujin Louie, CEO of Wanchain
Institutional capital is not crossing the bridge — it’s waiting for the compliance gatekeeper. While crosschain transactions promised a seamless, borderless crypto economy, regulatory walls are rising on every chain.
Emerging standards like Markets in Crypto Assets (MiCA) in Europe and the Financial Action Task Force (FATF) Travel Rule are no longer optional hurdles. They define who survives in the race for global liquidity.
With increasing interest in cryptocurrencies, compliance is becoming a more significant differentiator than technology.
AML blind spots persist — bridges are still a favorite tool for laundering
The blind spot in crosschain transactions is Anti-Money Laundering (AML) monitoring. Crypto mixers, DEXs, coin swap services and bridges have processed billions in illicit flows, with recent forensic reports tying more than $21.8 billion in laundered assets to these tools. When funds move from Ethereum to Solana through a decentralized bridge, legacy AML analytics lose their trail.
The architecture of many bridges enables the potential obfuscation of wallet provenance, undermining transaction tracking across networks. Centralized exchanges face mounting pressure to implement crosschain surveillance, but bridges remain a favorite tool for hackers and money launderers — with law enforcement struggling to keep up.
Legacy AML tools are not designed for decentralized bridges
Legacy AML tooling is not keeping pace with decentralized bridge innovation. Most legacy compliance solutions were intended for exchanges and custodians with clear KYC endpoints. Decentralized bridge protocols often lack counterparty identification, making Travel Rule implementation an open challenge.
While AI-powered analytics and smart contract plugins now auto-flag wallet clusters and suspicious movements in near real-time, these tools still rely on centralized data collection standards, like IVMS 101, which presumes a regulated intermediary on every hop. This is directly at odds with the permissionless nature of bridges and decentralized protocols, often leaving a compliance void between networks.
Crosschain transactions reveal Travel Rule and jurisdictional contradictions
Crosschain transactions expose profound complications when executing the Travel Rule. Global regulators require crypto service providers to include originator and beneficiary details in transfers over threshold amounts — but bridges and DEX swaps lack the compliance logic, due to their decentralized nature, to surface this data.
European MiCA regulations bring uniform standards, but only for registered VASPs and authorized platforms. Outside this, they don’t have a way to keep track of global transactions. In the US, the recent Office of Foreign Assets Control (OFAC) penalties underscore an appetite for strict enforcement — digital banks now face fines of over $200 million for AML lapses, if they don’t comply.
The UK regime aims to widen oversight beyond registration, making the AML lens much broader for DeFi.
Each jurisdiction has its own rules and systems for AML monitoring, making it challenging to keep track of global transactions that occur via crosschain flows in bridges. We need solutions to service permissionless, decentralized systems that comply with international regulations. The crypto analytics services have a significant business opportunity if they adapt their tools to work seamlessly with decentralized systems.
We need better AML tooling for bridges to get a DeFi-compliant
AML-compliant bridges are needed for regulated DeFi to be viable for mainstream use. A handful of projects are already integrating AML tooling to comply with most jurisdictions. Still, unfortunately, AML tooling that doesn’t demand decentralized protocols to sacrifice their decentralization ethos has yet to emerge in any significant way. DeFi systems will be kept far away from institutions without this kind of infrastructure.
Related: New BIS plan could make ‘dirty’ crypto harder to cash out
Even so, institutional players are piloting regulated crosschain settlements with privacy and compliance baked in. Mass institutional adoption will, however, stall until bridges are refitted with services that can embed Travel Rule logic. The opportunity is for startups to create compliance services into protocol design — those who do will seize market share as rules tighten.
The urgency of self-regulation
There is a shrinking window for decentralized protocols to self-regulate and develop proactive compliance infrastructure before regulators mandate closed standards. Some will see this as an existential threat to permissionless innovation — but compliance is emerging as the only passport to global scale and sustainable partnerships.
What may be controversial to permissionless purists is that crosschain compliance isn’t just a regulatory burden — it’s a business imperative. The institutions waiting on the sidelines may soon dictate the terms of adoption: compliance or exclusion.
Some will object that prioritizing AML rules and regulatory mandates undermines crypto’s permissionless spirit. Others will argue that the anti-privacy implications of Travel Rule compliance make every bridge a weak link for surveillance. Still, market reality is shifting — jurisdictions’ writing rules are paving the way for institutional capital
Ignoring crosschain compliance is not just risky — it is a market disadvantage. The winners in this space will treat compliance not as a checkbox but as a design principle. This is how DeFi evolves — and how institutional capital finally crosses the bridge.
Opinion by: Temujin Louie, CEO of Wanchain.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Source: https://cointelegraph.com/news/crypto-crosschain-regulation?utm_source=rss_feed&utm_medium=feed&utm_campaign=rss_partner_inbound
