Policy 101

Understand the Basics

The Landscape

What are onchain policies and why do they matter?

The Problem

Ineffective Risk Management and Compliance

Risk management is necessary for organizations to meet their business, legal, and regulatory requirements, including anti-money laundering, sanctions obligations, fraud prevention, and securities laws. Most risk management and compliance solutions, however, fall short by relying on front-end execution (which is easily bypassable) and walled gardens closed off from DeFi.

For blockchains to become the global financial settlement system, capital will need to seamlessly flow to and from regulated markets. Because of the permissionless nature of blockchains, users and organizations will need high-performance onchain systems that offers robust controls for compliance and market integrity.

The SOlution

Onchain Policy

Policy is a programmable set of rules that determines whether a transaction is approved or denied. In traditional finance, these rules act as the invisible infrastructure that powers the global financial system. Used by banks, payment processors, and technology platforms, policy enables businesses to define and enforce rules based on their specific requirements. This concept of policy can be translated to blockchain systems in order to enforce business, legal, and regulatory requirements onchain.

With Predicate, developers and organizations can create and customize onchain policies to match their needs. Some use cases for policies include:

Screening high-risk users and counterparties to prevent fraud
Supporting compliance teams with anti-money laundering (AML) and countering the financing of terrorism (CFT)enforcement
Conducting geolocation and identity verifications for access to regulated assets

The Future

How Onchain Policy Enables Financial Products Across Regulated Markets

With policy built on Predicate, businesses can launch secure and compliant financial products on blockchains. Here’s how it works:

1 Define the Policy

Applications define rules that reflect real-world requirements: AML/CFT checks, identity verification, geofencing restrictions, rate limits, and more.

2 Deploy with Predicate

Predicate policy verification is integrated at the smart contract level for applications, assets, bridges, and more.

3 Automated Enforcement

When a user interacts with a financial product secured by Predicate, the transaction is automatically screened for policy adherence in real-time.

how it works

The Predicate Network Architecture

The Predicate Network is a distributed verification layer designed to create and enforce policies. It connects three core participants to verify transactions before they’re executed. This ensures:

Programmability: build custom rules and leverage a marketplace of information providers with one integration
Protocol-level enforcement: verify policy adherence within the smart contract
Robustness: build enforcement through a network of distributed operators