One of the core tensions in Web3 AML compliance is the conflict between regulatory requirements and decentralization. Unlike traditional banks, which operate under centralized governance, many crypto firms — especially those involved in DeFi (Decentralized Finance) — operate without centralized intermediaries. This creates a fundamental challenge in applying traditional AML approaches, as many DeFi platforms lack direct control over user identities and transactions.
However, this does not mean that effective compliance is impossible. The crypto industry has access to advanced blockchain-based tools that can enhance AML enforcement while maintaining decentralization, such as On-Chain Analytics; Decentralized Identity Verification; and Smart Contract Audits. By implementing these measures, crypto firms can demonstrate that AML compliance does not have to come at the cost of decentralization, but rather can be adapted to fit the unique nature of blockchain finance. Of course, proper Customer Due Diligence and risk-based approach on boarding and ongoing monitoring mechanisms in dealing with identified users, should be in place similar to traditional intermediaries.
