Aleo is a leading privacy-first blockchain designed to enable the next wave of crypto adoption. However, confidential blockchain capabilities require thoughtful risk mitigation design. The Aleo Network Foundation and its ecosystem participants are committed to ensuring the blockchain supports safe network growth and meets the risk management standards necessary to partner with world-class organizations.

That commitment led the team to a difficult challenge: How can Aleo screen incoming deposits to the chain for AML and sanctions exposure at scale, without compromising its privacy guarantees or user experience?

The answer: Predicate’s programmable policy platform. Predicate and Aleo teamed up to create custom compliance policies embedded in all Aleo bridges to dynamically filter out high-risk wallets before they can deposit to the chain. By replacing manual deposit screening with automated, real-time screening, Aleo has achieved the following:

99% reduction in bridge deposit time: From 24 hours to 15 minutes
Two upcoming stablecoin deployments from major issuers: Circle and Paxos Labs
0 hours spent on manual deposit reviews for bridge operators

Read on to learn more about how Predicate and Aleo worked together to implement the ideal real-time risk mitigation policy for privacy chain bridging.

Background information: What is Aleo?

Aleo is a Layer-1 (L1) blockchain designed to enable private payments, investments, and DeFi activity. Built on zero-knowledge (ZK) technology, Aleo aims to accelerate crypto adoption across both retail and institutional use cases. The core thesis is simple: Users and institutions will transact more onchain if their financial data – transaction timestamps, medical bills, corporate vendor payments, trading strategies – isn’t publicly exposed.

Users primarily access Aleo by depositing on cross-chain bridges – the first live bridge is Verulink. Verulink serves as the ecosystem’s main entry point today, and is a crucial part of Aleo’s risk management strategy and Predicate implementation.

The compliance challenge: Managing risk and maintaining UX on a privacy-first blockchain

Privacy systems like Aleo are essential for accelerating crypto adoption, but it’s crucial to prevent malicious actors from abusing their capabilities. Bridges like Verulink are another risk vector. Cybercriminals have increasingly used cross-chain bridges for money laundering in recent years, with experts estimating annual bridge deposit volumes from criminal sources at over $1 billion annually.

Aleo had to make risk mitigation features a top priority in order to meet regulatory objectives and limit illicit finance. High compliance functionality was also crucial for Aleo given its goal to partner with top-tier stablecoin issuers and launch private versions of their stablecoins on the chain – issuers need strong risk mitigation controls to prevent misuse of their assets. "In order to support private payments and regulated assets at scale, we need robust risk controls that issuers and other partners can trust, without undermining the privacy guarantees that make Aleo unique," said Aleo Global Head of Policy Yaya Fanusie.

All of this led the Aleo Network Foundation to draft ARC-100, a governance proposal for risk management standards on Aleo bridges, which governance voters then passed. Bridges are a natural place in the infrastructure stack for privacy chains to integrate compliance controls, as they can act as a natural checkpoint for users before they deposit and access the chain’s privacy benefits.

However, Aleo’s initial bridge compliance setup on Verulink required a 24-hour bridging delay for users, as it relied on attestors conducting manual checks on depositors using static blacklists. This solution caused significant user friction and operational overhead. "With Predicate, we successfully streamlined our operations, while eliminating manual delays and significantly improving the bridging experience," said one Verulink tech lead.

The solution: Real-time sanctions screening on Aleo bridges

Predicate enabled Aleo to replace its manual compliance process with an automated one that screens users more effectively, with less overhead and friction for users.

Predicate is the programmable policy platform for real-time risk management. It enables privacy projects like Aleo to create custom rules integrated at the smart contract level and enforced on every transaction. Compliant users deposit normally with virtually no additional latency, while non-compliant users are filtered out automatically before the deposit executes. The checks occur before users enter Aleo’s privacy ecosystem, and at no point does Predicate ingest sensitive user data.

We worked together with Aleo’s COO, outside counsel, and the Verulink team to create a sanctions exposure screening policy tailored to Aleo’s use case. The policy incorporates two data sources:

The official OFAC sanctions list
A dynamically maintained set of addresses linked to OFAC-listed entities through onchain activity

Both lists update in near real time to reflect new sanctions designations and live onchain activity. Any address that triggers the policy is automatically prevented from bridging funds to the Aleo blockchain. The Predicate model saves Aleo significant time by eliminating both static list maintenance and manual reviews of depositors. "Predicate greatly streamlines Aleo's screening workflow capacity, freeing our team to focus on higher-impact risk management strategy," said Yaya Fanusie.

The results: Key partnerships and 99% faster bridging

For Aleo’s users, the impact was immediate. Predicate allowed Verulink to reduce its bridging delay from 24 hours to just 15 minutes, as screening now occurs automatically at the moment of deposit. All future Aleo bridges will come equipped with Predicate out of the box and provide equally fast bridging times as well.

Predicate’s strong risk management guarantees have also helped Aleo land partnerships with two of crypto’s biggest stablecoin issuers: Circle and Paxos Labs. Both are deploying private stablecoins on Aleo, setting the stage for a new class of private onchain payments products on the chain.

"Predicate has been an essential partner in bringing the Aleo vision to life by helping us balance privacy, usability, and risk management," said Aleo COO Leena Im.

Predicate has enabled UX improvements and new partnerships for Aleo that are setting the stage for long-term growth. And this is only the beginning. Predicate and Aleo are building out additional risk management workflows powered by programmable policy that will enable more holistic private payments systems on the Aleo blockchain. “Predicate gives us a flexible foundation to evolve Aleo’s risk management approach over time as we build out new functionalities, without sacrificing privacy or developer velocity,” said Leena.

Enforce AML and sanctions screening onchain for your privacy project with Predicate. Contact us to learn more.