Institutional capital is hesitant to engage with crosschain transactions due to rising compliance barriers. Regulatory frameworks such as Europe’s Markets in Crypto Assets (MiCA) and the FATF Travel Rule are redefining the landscape of crypto liquidity by emphasizing the need for compliance over technological innovation. Currently, decentralized exchanges (DEXs) and bridges are exploited for money laundering, raising concerns over Anti-Money Laundering (AML) blind spots. Legacy AML tools struggle to adapt to decentralized protocols lacking clear counterparty identification. As decentralized finance (DeFi) grows, integrating AML compliance measures is crucial for institutional adoption. The urgency for self-regulation is highlighted, as lapses in compliance could exclude decentralized solutions from global markets. Moreover, the implementation of crosschain compliance is seen not just as a regulatory necessity but as a competitive advantage. As financial institutions await compliant infrastructure, the market advantage goes to those who prioritize regulatory considerations in their designs, shaping the future of DeFi towards mainstream acceptance.

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