Why Digital Asset Markets Need Trusted Organizational Identity for Reusable Compliance

Regulated digital asset markets will not scale while every counterparty has to run and re-run the same identity and compliance checks. The fix is proving compliance once against a trusted root of identity – and reusing that proof everywhere it is needed.

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Digital asset markets have spent years proving that value can move faster on-chain, demonstrating that settlement can be atomic, markets can run continuously, and assets can be programmable.

Those gains promise significant benefits, but a key barrier must now be overcome if digital finance is to truly scale. In the current system, it is still an extremely time-consuming and costly process to answer the questions that determine whether a regulated institution can actually transact on-chain: who is the counterparty? And can that be verified to a standard a regulator will accept?

The compliance problem is duplication, not difficulty

The digital asset compliance challenge stems from a structural flaw. No institution can trust another institution’s compliance process, and a regulator cannot allow one institution to reuse another’s checks for a third party. Consequently, institutions spend significant time and resources rebuilding and repeating the same Anti-Money Laundering (AML) and Know Your Customer (KYC) workflows independently.

Not only is this trust gap highly inefficient and costly, but it also creates a fundamental weakness. By identifying and targeting the institutions that perform the least rigorous compliance checks, bad actors can create a point of failure.

This is a familiar pattern in financial infrastructure. When every participant attempts to solve the same problem in isolation, the result is high aggregate cost, inconsistent quality, and security vulnerabilities. The fix is not to lower compliance standards. It is to perform the work once, to a defined standard, and make the result verifiable by others.

The need for an interoperable organizational identity layer

This is where the Global LEI System comes in. Created as a broad public good and governed by regulators, it has grown into an international organizational identity infrastructure and global Digital Public Infrastructure (DPI). The identifiers it provides – the Legal Entity Identifier (LEI) and verifiable LEI (vLEI) – create a globally standardized, regulator-endorsed, commercially neutral, interoperable organizational identity layer that establishes proof of an entity's identity and of who is authorized to act on its behalf.

Importantly, it is not a compliance engine and does not endorse any single commercial approach. What a market participant builds on top of the proof provided, including how compliance conditions are set and enforced, is a separate layer offered by others in the ecosystem.

A worked example: onboarding a corporate investor once

Consider a corporate treasury that wants to buy a tokenized money market fund. Today, that entity onboards with the issuing institution, submitting entity documentation, beneficial ownership data, and evidence of authorized signatories, and passing AML, KYC, and sanctions screening processes. To then trade with a second institution, or move an asset to a custodian, the entity often must repeat a comparable process for each new counterparty. Each onboarding cycle adds time, cost, and another copy of sensitive data held in another database.

Now apply organizational identity to the same flow. The corporate is identified by its LEI. The individuals authorized to act for it are credentialed with the vLEI, which enables a counterparty to computationally verify the identity, authority, and role of the person acting on the entity’s behalf. Because the vLEI is built on the Key Event Receipt Infrastructure (KERI), it generates cryptographic proofs that are independent of any single ledger, so the same verified identity can be presented to a counterparty on one network and a custodian on another without re-running the underlying checks.

By avoiding repeated checks across different institutions, the amount of sensitive data exposed during onboarding is also reduced. This is because the verification is shared as proof rather than as another full copy of the underlying documents.

The mechanism doing the work here is the reuse of a cryptographically verifiable credential anchored to a trusted root of identity. As a result, the corporate treasury is verified once, at the point of entry into the ecosystem, using a widely used organizational identity, enabling enhanced interoperability between capital markets and blockchain environments.

The proof of that verification then travels with it across networks, enabling cross-chain interoperability. In this scenario, not only do the user and institution benefit from greater efficiency and reduced costs, but the regulator and society also benefit as it becomes much harder for bad actors to fraudulently pass onboarding checks.

Emerging regulatory frameworks make the case for reusable compliance

Growing regulatory demands across digital asset markets globally are reinforcing the need for reusable compliance, while demonstrating recognition of the central role that standardized, verifiable organizational identity can play.

For instance, in the United States, the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act) was enacted in July 2025. The Act establishes the first federal framework for payment stablecoins, subjecting issuers to Bank Secrecy Act obligations, including AML, sanctions, and customer identification requirements. Implementing rules are being developed across the responsible regulators through 2026. In parallel, a market infrastructure bill for digital assets – the Digital Asset Market Clarity Act (CLARITY Act) – outlines requirements for digital assets more broadly.

This is precisely the context in which a standardized organizational identifier earns its place: the (v)LEI can identify the legal entities operating in the digital asset ecosystem, including virtual asset service providers, stablecoin and digital asset issuers, and custody providers, which supports supervisory oversight while lowering compliance costs for the entities themselves.

What's left to solve?

Despite the compelling benefits and undoubted momentum, there are various considerations that must be addressed before reusable compliance becomes the norm.

First, there is no technical standard for compliance. Organizational identity has strong standards in the LEI and vLEI, and messaging uses formats similar to those used across the SWIFT network, but compliance is largely governed by legal requirements that vary by jurisdiction and are often written in general terms. Reusable compliance depends on translating these legal requirements into defined technical steps that can be executed and proven, and on ensuring that the translation work is not finished.

Second, and this point ties into the first, compliance is likely to become increasingly burdensome as regulatory oversight of digital asset markets increases. Central banks and regulators will not, for instance, reduce compliance requirements to increase throughput. As a result, institutions must focus on meeting the same, or indeed increased, obligations through a more efficient, more provable process.

Third, the underlying architecture must be interoperable from the outset. A verified identity is only useful where it can be relied on. If a corporate is onboarded on one network but the assets it wants are issued on others, its identity must be portable across those environments. An identity confined to a single network has limited value, which is why interoperability is a precondition rather than a later optimization.

Unlocking the full potential of digital asset markets

The promise of increased speed alone does not make digital asset markets viable for regulated participants. A transaction that cannot be trusted by a counterparty, a custodian, or a regulator is not usable in a regulated context. Trust is the difference between a pilot with a handful of counterparties and a market that operates at scale.

If trust is anchored to a verified identity that is independently governed and provable cryptographically, it provides counterparties with a shared reference they can rely on for compliance without bilateral negotiation. This allows compliance work to be done once to a high, guaranteed standard, and then reused across counterparties and networks. With this model in place, significant efficiencies are achieved, enabling regulated digital asset markets to fully scale.

For an institution that issues or holds digital assets, the practical takeaway is to treat identity and compliance as design decisions, not afterthoughts. The question to ask early is whether the onboarding, identity verification, and screening steps a client must pass can be reduced, reused, and proven, rather than rebuilt for every counterparty. Anchoring that design to an existing root of trust, such as the (v)LEI, makes its reuse defensible to counterparties and regulators alike.

This was the main takeaway of my Trust Talks conversation with Sergey Nazarov, Co-Founder of Chainlink. Sergey explained that “If you are building or issuing a digital asset, start thinking about how to simplify on-chain identity and compliance in a way that your digital asset has less friction for customer adoption than its traditional counterpart. Is there a way for you, as an issuer or creator of digital assets, to simplify the onboarding flow, the identity verification flow, the accredited investor check, the AML/KYC check, the OFAC check?”

We also explored why the compliance burden in digital finance is a duplication problem rather than a difficulty problem; how a verifiable root of identity enables verification to be performed once and reused across counterparties and networks; and why interoperability and clear technical standards are preconditions rather than refinements.

The full Trust Talks discussion is available across YouTube, Spotify, and Apple Podcasts: https://linktr.ee/TrustTalks

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