The Future of Sanctions Screening is Private and Real-Time

Broadcasting screening requests on a public mempool is a gift to MEV bots and blacklisters. It creates a toxic information asymmetry where compliance checks become attack vectors.

• Leaks user intent and wallet associations pre-execution.
• Enables extractive MEV via transaction censorship or sandwich attacks.
• Turns OFAC lists into a public denylist for blockchain explorers.

Move the compliance logic off-chain and prove the result, not the data. A ZK proof attests a transaction is clean without revealing the screened addresses or the specific list rules.

• Privacy-Preserving: User data and screening criteria remain confidential.
• Universal Verifiability: Any verifier (relayer, chain) can trust the proof's validity.
• Enables Intent-Based Architectures: Critical for systems like UniswapX and CowSwap that separate order flow from execution.

Screening at the block or end-of-day level is fundamentally reactive. Illicit funds move in seconds, but legacy systems detect them hours later, creating massive liability windows.

• Allows real-time contamination of DeFi pools and bridges.
• Shifts liability to innocent integrators and LPs after the fact.
• Makes protocols like Aave and Compound vulnerable to frozen capital events.

Screen every transaction intent at the edge, before it hits a public chain. This requires a secure, low-lattice network of attestation nodes, similar to a Decentralized Oracle Network but for compliance.

• Sub-second Latency: Enforces policy at the speed of crypto.
• Pre-Execution Safety: Prevents contaminated transactions from being finalized.
• Modular Integration: Can plug into any intent solver, sequencer, or bridge (e.g., Across, LayerZero).

Every jurisdiction, protocol, and bridge maintains its own list with different rules and update frequencies. This creates compliance arbitrage and forces developers to integrate a dozen conflicting APIs.

• No Single Source of Truth: Leads to inconsistent enforcement and legal gray zones.
• Integration Overhead: ~40% of dev time for cross-chain apps is wasted on compliance plumbing.
• Inhibits Composability: Breaks the fundamental "money Lego" promise of DeFi.

Treat compliance as a network primitive, not an app-layer feature. A shared layer for private, real-time attestations that any protocol can query, creating a unified compliance fabric without a centralized database.

• One Integration, Global Ruleset: Plug into the network, not individual lists.
• Dynamic Policy Engine: Supports complex, programmable logic beyond static lists.
• Unlocks Regulatory Clarity: Provides a clear, auditable proof-of-compliance for VASPs and institutions.

The Problem: Transparent blockchains leak sensitive compliance data, creating security risks and regulatory overreach. The Solution: Aztec provides a programmable privacy layer using zk-SNARKs, enabling private smart contracts and shielded transactions. This allows for private proof-of-compliance where only the validity of a check is revealed, not the underlying data.

• Enables selective disclosure to regulators via viewing keys.
• Integrates with Tornado Cash alternatives for compliant privacy pools.

The Problem: Off-chain screening APIs are slow (~2-5 seconds), create data silos, and require trusting centralized providers with full transaction history. The Solution: Chainalysis is deploying its sanctions screening oracle as an on-chain, real-time service. Smart contracts can query the oracle in sub-second latency to screen addresses before permitting interactions.

• Moves critical compliance logic on-chain for DeFi and cross-chain bridges.
• Reduces reliance on opaque, custodial middlemen.

The Problem: Users must choose between total privacy (and being blocked) or total transparency (and losing financial sovereignty). The Solution: Nocturne builds private accounts that are inherently compliant. Using zero-knowledge proofs, users can prove they are not interacting with sanctioned entities without revealing their identity or transaction graph.

• Enables private DeFi participation on mainnet Ethereum.
• Shifts compliance burden from the protocol to the user's client-side proof.

The Problem: Compliance silos break cross-chain interoperability; a user cleared on Ethereum may be blocked on Avalanche, forcing fragmented liquidity. The Solution: Cross-chain messaging protocols like LayerZero and Chainlink's CCIP are becoming the plumbing for shared compliance states. They enable a "screened once, recognized everywhere" model by passing attestations of compliance status between chains.

• Critical for intent-based bridges (Across) and cross-chain DEX aggregators.
• Prevents regulatory arbitrage and fragmentation.

A private system's integrity depends on the veracity of its off-chain data feeds. A compromised or censored oracle becomes a single point of failure, potentially enabling sanctioned activity to slip through.

• Risk: Malicious or coerced data providers can poison the entire network.
• Mitigation: Requires a robust, decentralized oracle network like Chainlink or Pyth, with strong cryptoeconomic security.

Different jurisdictions will adopt conflicting standards for what constitutes 'private compliance.' Protocols may face a Scylla and Charybdis choice: fragment liquidity per region or risk global enforcement action.

• Risk: A patchwork of incompatible lists and rules balkanizes global finance.
• Example: A wallet approved under EU MiCA rules could be blocked by an OFAC-focused US validator set.

Zero-knowledge proofs and MPC add significant computational overhead. For real-time screening at the scale of Uniswap or a major CEX, latency and cost could become prohibitive.

• Risk: ~500ms target latency may be impossible for complex list checks, forcing compromises on privacy or moving checks off the critical path.
• Result: 'Real-time' becomes 'near-time,' reintroducing settlement risk.

Major institutions like JPMorgan or Coinbase will not adopt until the tech is proven at scale. Builders won't achieve scale without major adopters. The interim phase is a vulnerability desert.

• Risk: The solution remains a niche tool for Tornado Cash-style privacy advocates, failing to achieve its mainstream compliance goal.
• Requirement: A 'killer app' or regulatory mandate to bootstrap the network.

If the screening logic and list updates are fully private, how do you audit it? Regulators and users must trust the operator's claims of compliance without proof, recreating the opaque trust model of TradFi.

• Risk: Defeats the purpose of transparent blockchain infrastructure.
• Solution: Requires sophisticated zk-proofs of policy adherence, a largely unsolved problem for dynamic rules.

Systems that automatically slash or freeze assets based on a private check create immense power. A bug, false positive, or governance attack could lead to irreversible, unjust confiscation.

• Risk: A $100M+ slashing event from a software bug would destroy trust permanently.
• Precedent: See the fragility of MakerDAO's emergency shutdown mechanism.

Protocols like Tornado Cash and Aave rely on centralized data feeds for sanctions lists, creating censorship risk and legal liability. This model is antithetical to decentralization.

• Vulnerability: A single API call can blacklist entire protocols.
• Latency: Batch updates create windows for non-compliant activity.
• Opaque Logic: No cryptographic proof of list integrity or application.

Projects like Aztec, Polygon ID, and Sismo demonstrate the model: prove compliance without revealing user data. A user cryptographically attests they are not on a sanctions list.

• Privacy-Preserving: The protocol sees only a ZK proof, not the user's identity.
• Real-Time: Attestations are generated on-demand with ~500ms latency.
• Decentralized Verification: Any node can verify the proof's validity.

Embed screening as a pre-hook in intent-based systems like UniswapX or cross-chain bridges like LayerZero and Across. Compliance becomes a verifiable condition of execution.

• Modular: Swap the attestation logic without changing core protocol code.
• Universal: Same proof works across DeFi, bridges, and NFTs.
• Cost-Effective: Shifts burden from L1 to specialized L2s or co-processors.

The trust shifts from the list provider to the attestation issuer (e.g., KYC providers, DAOs). This creates a new attack surface and governance challenge.

• Sybil Resistance: How are issuers accredited without creating a cartel?
• Revocation: Real-time status updates require robust revocation registries.
• Legal Liability: Who is liable if a ZK proof is forged or issued incorrectly?

Forget simple accuracy. The key metrics for architects are screening TPS and attestation finality time. This determines if your protocol can scale.

• Throughput: Must match or exceed base chain TPS (~10,000+ proofs/sec).
• Finality: Time from list update to global enforcement (target: <2 sec).
• Cost: Screening cost per transaction must be <$0.01 to be viable.

Protocols that implement private, real-time screening first will onboard regulated institutions and trillions in RWAs. This isn't just about risk mitigation; it's a growth lever.

• Institutional Onramp: Becomes the default for banks and hedge funds.
• Regulatory Arbitrage: Jurisdictions will compete to host compliant, private DeFi.
• Composability: Compliant liquidity fragments become the new yield-bearing base layer.