Facing burdensome manual processes, traditional finance (TradFi) institutions spend billions annually on compliance related to identity verification (AML/KYC). Blockchain technology offers a potential solution, promising significantly faster and cheaper methods.

“Compliance is an inefficient part of the traditional finance industry… If you compare what it costs and how complicated it is to make a compliant transaction in the TradFi world, our industry should be able to do it ten times faster and cheaper.”

Chainlink Co-founder Sergey Nazarov highlights the exorbitant costs and complexity inherent in TradFi compliance, isolating identity verification (AML/KYC) as a problematic area. He suggests that blockchain solutions could radically reduce these inefficiencies.

Addressing this challenge head-on, Chainlink recently unveiled its Automated Compliance Engine (ACE), a framework designed to manage regulatory compliance across TradFi and DeFi through a standardized and modular approach. Currently in early access, ACE aims to lower friction and costs for institutional investors entering the blockchain market.

According to Chainlink, successfully reducing compliance barriers could unlock substantial institutional capital flow into the blockchain economy.

Research indicates the tangible impact of this issue, citing financial crime compliance costs for US and Canadian institutions exceeding $60 billion in 2023. Blockchain efficiency promises solutions.

Looking beyond compliance, blockchain also offers advantages for Real World Asset (RWA) tokenization. Sergey Nazarov believes tokenization combined with reduced compliance costs—potentially five to ten times cheaper than traditional methods—could make investing in traditional assets through tokenization more appealing.

“It’s meant to reduce the friction and the cost of institutional capital doing transactions on blockchains,” Nazarov stated. ACE framework supports launching tokenized RWAs with built-in compliance, potentially lowering the friction and cost for institutional investors entering blockchain markets.

Recent data from RWA.xyz shows significant growth in on-chain RWA value, recently exceeding $25.4 billion across 318,000 asset holders globally, underscoring growing institutional interest potentially amplified by these cost-saving solutions.