#BaselCommittee

UBS demos permissionless blockchain compliance at infrastructure level

UBS and blockchain firm Nethermind have successfully completed two proofs of concept on the Ethereum Sepolia test network to integrate compliance controls directly into the block production pipeline. This architectural shift moves beyond traditional smart contract-based allow lists, which currently serve as the primary method for institutional compliance on permissionless chains. The initiative addresses critical regulatory concerns regarding governance, Maximal Extractable Value (MEV), and counterparty anonymity that prevent banks from fully adopting public blockchains. By embedding compliance at the infrastructure level, the project aims to satisfy the Basel Committee on Banking Supervision, which currently imposes punitive capital requirements on tokenized securities held on permissionless networks. This development is significant because it seeks to align public blockchain operations with stringent banking regulations, potentially unlocking institutional participation. The work builds upon a previous whitepaper collaboration between Nethermind and Deutsche Bank, highlighting a coordinated industry effort to solve systemic infrastructure risks. Successfully bridging this gap could fundamentally alter how financial institutions interact with decentralized networks for asset tokenization.

Ledger Insights·Jun 23