The compliance problem hiding in every AMM
- The source of funds problem
- Why this matters more than slippage
- The institutional path
- The two stablecoin economies
- The scale implication
- The uncomfortable truth
Here's a fact that should bother more people: Lazarus Group money from North Korea is sitting in many Curve pools.
This isn't speculation. It's on-chain, traceable, documented. And it creates a problem that is far more consequential for stablecoin adoption than gas fees or slippage.
The source of funds problem
The source of funds for AMMs — and therefore much of the source of funds for market makers — while not necessarily bad, is sometimes as much as 13%, 17%, 25% gray capital. "Gray" meaning capital whose provenance is unclear, whose compliance status is uncertain, and whose presence in a liquidity pool makes the entire pool untouchable for regulated entities.
Most compliance teams at regulated fintechs are actually not happy with money touching those AMMs.
If you tell a fintech like Ramp — which is a big US fintech focused on enterprise spend — that their stablecoin swap went through a pool that contains sanctioned funds, they cannot touch it. That's not in their compliance regime. Full stop.
It doesn't matter that 87% of the pool is clean. It doesn't matter that the swap itself was between two legitimate parties. The pool contains tainted funds, and touching the pool means touching those funds. That's how compliance works at regulated institutions.
Why this matters more than slippage
Most of the conversation about AMMs versus alternatives focuses on execution quality. Slippage, gas costs, speed. These are real concerns — you might lose 13% going PYUSD to USDC on a thin pool. You might try to send a million dollars and end up with $870,000.
But even if AMMs had zero slippage and zero gas costs, the compliance problem alone would prevent institutional adoption. No compliance officer at a regulated fintech is going to sign off on routing customer funds through a pool that contains North Korean money. The risk isn't financial — it's existential. One OFAC violation can shut down a company.
This is the problem that doesn't show up in DeFi dashboards. You can track TVL, volume, slippage, and fees. You can't easily track what percentage of a pool's liquidity comes from sanctioned wallets. And even if you could, the answer would make most compliance teams walk away.
The institutional path
This is why I believe the institutional path for stablecoin adoption runs through clearinghouses, not DEXs.
A clearinghouse offers something that no AMM can: known counterparties. When a stablecoin goes through a clearinghouse, every participant is a Genius Act-compliant issuer. The flow of funds is auditable. The source of capital is documented. The compliance team at Ramp or any other regulated fintech can look at the transaction and say: we know where this money came from, we know where it went, and we can prove it.
We're only going to allow clearinghouse members — issuers that are part of the clearinghouse — that are Genius Act compliant. And so we're trusting our regulators to do that oversight. We might, in fact, work with them to make sure that they have the collateral they say they have.
The complexity of the current workaround is staggering. I was talking to the BVNK team — they have an orchestration service for swapping between USDC and USDT, but they can't really handle other stablecoins. They have to connect to 60 different market makers in order to chunk up and process orders. And it's still a slippage-heavy, market-based operation. Sixty market makers for one swap pair. That's not infrastructure — that's a Rube Goldberg machine.
And the operational reality is even worse. Krish from Ramp described money arriving at liquidation addresses, never forwarding, and then having to ping the provider on Slack a day later. A day after that, they'd hear back — "oh, it got orphaned, and we need to move the money." In the fiat banking world, if the money showed up in the bank, you'd see it in the bank. In crypto infrastructure, money disappears into liquidation addresses and you're left refreshing Slack. For a compliance team, this is a nightmare.
This isn't about being anti-DeFi. It's about the reality of how regulated businesses make decisions. When the choice is between a permissionless pool with unknowable counterparty risk and a regulated clearinghouse with documented participants, every compliance team in the world picks the clearinghouse.
The two stablecoin economies
What's emerging is effectively two parallel stablecoin economies:
The permissionless economy: Retail users, DeFi protocols, DAOs, and unregulated entities use AMMs, DEXs, and permissionless bridges. This economy values censorship resistance, composability, and open access. It tolerates source-of-funds risk because the participants either don't have compliance obligations or choose not to enforce them.
The regulated economy: Fintechs, banks, enterprises, and institutional investors use clearinghouses, OTC desks, and regulated exchanges. This economy values compliance, auditability, and counterparty certainty. It cannot tolerate source-of-funds risk because the participants' licenses depend on it.
Both economies use the same stablecoins. Both run on the same blockchains. But they route transactions through fundamentally different infrastructure because they have fundamentally different risk tolerances.
The scale implication
Here's why this matters for the future of stablecoins: most of the money is in the regulated economy.
Stablecoin volume today is roughly $200-300 billion in market cap. The global payments industry handles $1.8 quadrillion in annual volume. The next $10 trillion in stablecoin usage will come overwhelmingly from regulated entities — fintechs building payroll products, enterprises settling invoices, banks offering stablecoin savings accounts.
None of those entities will route through pools that contain sanctioned funds. None of them will accept the compliance risk of permissionless liquidity. All of them will need infrastructure that provides deterministic, fixed-price fees on payments, sends, and swaps — with a clean, documented source of funds.
This is why fintechs prefer deterministic fixed-price fees on payments, sends, and swaps, and prefer a more compliant source of capital. The clearinghouse model isn't just better execution — it's the only execution that institutional compliance teams will approve.
The uncomfortable truth
DeFi's permissionless liquidity is a feature for retail. It's a bug for institutional adoption.
This doesn't mean DeFi is going away. The permissionless economy will continue to grow and innovate. DEXs will continue to serve users who value open access above all else.
But the institutional path — the path that leads to stablecoins handling trillions in volume — goes through compliance-first infrastructure. Clearinghouses, regulated issuers, documented flows. Not because it's ideologically pure, but because it's the only infrastructure that regulated businesses can use.
This isn't a problem that better trading solves. The other solutions people talk about — even when they can articulate that you don't want a spot transaction — are still attempting to use market operations rather than banking rails and reserve capital. It's not a difference in degree where better trading will fix things. We actually need a fully different type of solution.
The compliance problem hiding in every AMM isn't hiding at all. Every compliance officer in finance can see it clearly. The question is whether the stablecoin ecosystem will build the alternative they need — or keep pretending the problem doesn't exist.
Quotes
Gray capital in AMMs
Source: Sam Broner / Common Prefix — Jan 20, 2026
The source of funds for AMMs and therefore much of the source of funds for market makers, while not necessarily bad, is sometimes as much as 13, 17, 25% gray capital, where most compliance teams are actually not happy with money touching those AMMs. So Lazarus money from North Korea is sitting in many Curve pools. And if you tell a fintech called Ramp, which is a big US fintech focused on basically enterprise spend, they cannot touch it. That's not in their compliance regime.
What fintechs actually want
Source: Sam Broner / Common Prefix — Jan 20, 2026
We're building tools for fintechs who want to use a clearinghouse because they want a more compliant source of capital and because they prefer deterministic fixed-price fees on payments, sends and swaps.
Clearinghouse members are Genius Act compliant
Source: Sam Broner / Common Prefix — Jan 20, 2026
We're only going to allow clearinghouse members — issuers that are part of the clearinghouse — that are Genius Act compliant. And so we're just trusting our regulators to do that oversight. We might, in fact, work with them to make sure that they have the collateral they say they have.
Ramp's real-world frustration with bridge costs and opacity
Source: Better Money / Ramp — Jan 16, 2026
Ramp (Krish): Bridge is really expensive. Like, borderline — I remember in the early days, people just being like, we have to really be confident this is really worth paying this much for. And because it's crypto, ideally without ripping everything out and building something from scratch — we can just start to overlay just bare metal, which is like the clearinghouse in the long term.
Money that vanishes in transit
Source: Better Money / Ramp — Jan 16, 2026
Ramp (Krish): There's money that arrives at the liquidation address, never forwards, and then we have to ping them in Slack a day later. And a day later after that, we hear back — "oh, it got orphaned or something, and we need to move the money." Because it's sort of — when Bridge receives $3,000 into a liquidation address and the money doesn't move to the destination and there's no visibility onto what's going on, that's very concerning to us. In the fiat banking world, if the money showed up in the bank, we will see it in the bank.
Stablecoins should be priced like ACH, not RTP
Source: Better Money / Ramp — Jan 16, 2026
Ramp (Krish): I almost think you have to sell ACH back to people. Like, if you could sell — quite literally — if you could just convince us that all the things we'd be losing in moving ACH volume to stablecoins, theoretically, would be regained... the reversibility and the windows. And it's also the cost — ACH transactions are dramatically cheaper than RTPs. One way I look at the stablecoin product, if we extrapolate it to be consensus, is it's like a Ramp treasury product, except all money in and out is RTP and it costs as much as RTP. We wouldn't want to do that.
Sam: So if you could get fixed-fee pricing in that range and reversibility, then that's actually an excellent outcome for you.
Ramp (Krish): Yeah, exactly.
AMMs often have 10-20% Lazarus funds in LP pools
Source: Zoom: Better Money Co. / Affinity — Dec 12, 2025
Sam: We don't want any external capital which might be gray money. It often is in crypto — like the AMMs have often 10, 15, 20% LP pools that are from Lazarus North Korean funds. But it's issuer money held at issuer banks, and that's how we do the mint-redeem, and we can do it at a fair or better price.
BVNK's 60 market makers
Source: Zoom: Better Money Co. / Affinity — Dec 12, 2025
Sam: I was talking to the BVNK team. They have an orchestration service where they try to help you swap between USDC and USDT, but they can't really handle other stablecoins. They have to connect to 60 different market makers in order to chunk up and process these orders. And it's still a slippage-heavy, market-based operation.
Trading will never solve this — a fully different type of solution
Source: Zoom: Better Money Co. / Affinity — Dec 12, 2025
Sam: The other solutions that people are talking about — even though sometimes they're able to articulate the fact that you don't want a spot transaction — they're actually not attempting to move through banking rails and use reserve capital. I think it has something to do with the culture of crypto, the fact that so many people are used to trading always being the solution. It's not like a difference in degree. Better trading is gonna solve this problem. We actually need a fully different type of solution.