Designing a Bitcoin DeFi for Institutions - Trust, Compliance and UX

DeFi promises a global, open financial system that is more efficient, decentralised and equal than our current Financial Market Infrastructure. However, in practice, this is difficult to realise due to a gap in comprehension and trust with large institutions, which limits integration. Therefore, for institutional adoption to begin, three requirements must be met: a solid foundation of trust, embedded compliance and an intuitive user experience.

Trust, Compliance and User Experience

There are three key problems holding back institutional flows into DeFi and specifically Bitcoin DeFi:

Trust: For institutional players, trust is paramount. They are accustomed to intermediaries, banks, brokers, custodians, who bear the legal and financial burden of counterparty risk. In DeFi, that burden is shifted to the user. Without a reliable base protocol and a clear way to verify the counterparty’s trustworthiness, institutions are forced to navigate a complex world  of potential liabilities. The very nature of a permissionless system, while a strength for some, becomes a legal and operational hurdle for institutions.

Compliance: The standard approach to Anti-Money Laundering (AML) and Know Your Customer (KYC) in DeFi often involves third-party analytics firms. These entities build proprietary risk-assessment models that, in a best-case scenario, flag suspicious activity, and discredit wallets that may have unknowingly dealt with bad actors. The result is a system more punitive and less transparent than traditional banking.

User Experience: Managing a seed phrase, gas fees, and complex transaction signing can require months of learning and building internal controls for companies. The language is unfamiliar, and the processes can be complex.

The Path Forward

It is not enough to solve just one of these problems. Trust, compliance and UX must be addressed together.

The solution is not to make DeFi more like TradFi but to design a new layer of abstraction that makes interactions seamless and intuitive. This is exactly what the partnership between Fairway and Sundial will achieve.

• Sundial is building a trustless protocol that institutions can utilise and rely upon. Through our non-custodial system, BTC can begin to earn yield, be staked, and act as liquidity for the DeFi world, allowing institutions to earn more from their treasuries and empowering the ecosystem to grow.
• Fairway is creating products that can handle all compliance needs so that incumbent players can use our protocol while still complying with all necessary regulations.
• Finally, as a team, Sundial and Fairway are ensuring that both of these products are easy and seamless for any institution to use. Utilising modular components, easy-to-understand metrics, and simplified KYC onboarding will allow us to create a simple-to-use UX that is needed within the Bitcoin DeFi space.

Bitcoin DeFi needs a platform that can generate trust, allow compliance to flourish, while still being easy to use. This partnership between Fairway and Sundial is poised to create exactly this solution. Our Catalyst proposal is linked here.