Galaxy develops KYC/AML framework to enhance DeFi compliance

Galaxy Digital is building a KYC/AML framework designed to help institutions actually use DeFi without running afoul of regulators. Here’s the thing about DeFi: it was built to be permissionless. Anyone with a wallet can swap tokens, provide liquidity, or take out a loan. But for a pension fund or a bank, “anyone can use it” is less a feature and more a compliance nightmare. The institutional DeFi paradox Galaxy has identified compliance challenges as a primary barrier preventing institutions from participating in decentralized protocols. Traditional finance operates on a “know your customer” basis. Every counterparty gets vetted. Every transaction gets monitored. Suspicious activity gets flagged and reported. DeFi, by design, does none of that. Galaxy’s research suggests this friction is pushing the industry toward hybrid models that blend centralized and decentralized finance, sometimes called CeDeFi. The Financial Action Task Force (FATF) has published guidance that effectively extends traditional due diligence requirements into the DeFi space. Galaxy’s own publications have discussed how this FATF guidance creates additional compliance obligations that most decentralized protoc...