Compliant privacy: the bridge between TradFi and DeFi

Linking TradFi and DeFi is like forcing a square peg into a round hole. Garbled circuits offer a way to connect centralized and decentralized finance without demanding undue compromises of either.

Bitcoin arose as a reaction to the perceived shortcomings of the global financial system. Encoded in the Genesis Block is a newspaper headline from the 2009 financial crisis, serving both as a timestamp and as a justification for why a peer-to-peer currency was needed: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks."

The financial systems that evolved from Bitcoin operate on a completely different paradigm from traditional finance. TradFi is centralized, permissioned, gatekept and opaque, with single points of failure throughout. DeFi is decentralized, permissionless, trustless and transparent, with no central control. The two are like oil and water. For a long time no real effort was made to connect them: banks either ignored crypto or actively avoided it. Today things are very different, but the fundamental incompatibility remains.

Adaptation versus interoperability

The challenge is not to force one system to become more like the other. It is to enable interactions between the two while keeping the properties of each intact: to move information and money between TradFi and DeFi without undermining the core values of either side.

Adaptation is always available, and always costly. It is simple, in practical terms, to strip KYC from an exchange and create more private on-ramps; that is how the earliest exchanges operated before regulators caught up. It is equally possible to build permissioned chains where approved parties validate, and transactions can be reversed; CBDCs are an example. Both directions sacrifice properties that exist for a reason.

What is needed instead is a bridge that lets each system stay itself. Decentralized confidential computation built on garbled circuits achieves this for the financial operations that matter most, permissioning and identity verification among them.

The permissioned meets the permissionless

Anyone can transfer funds between two crypto addresses. No identity documents, no central service, not even an email address. The opposite holds in TradFi: every account holder is identity-verified and every transaction passes through a regulated entity.

Connecting the two therefore requires identity verification somewhere, and identity verification normally means a centralized database of personal information: a single point of failure waiting to be exploited. In May 2025, Coinbase disclosed that criminals had bribed support agents to steal personal data of about 70,000 customers, including names, addresses, government IDs, balances and transaction history. Those customers now carry an elevated risk of social engineering and even physical attacks.

Garbled circuits remove the honeypot. They allow general-purpose computation on encrypted data, so verification can happen without the verifier ever holding the raw information.

Example: exchange KYC without the data

A garbled circuit can establish that a user is over 18 without learning their date of birth, or that they live in an approved jurisdiction without learning their address.

Concretely, an exchange can check that a user's identity details match the record in a trusted authority's database without its employees ever seeing the details themselves. The user extracts the necessary data from their passport's machine-readable zone or embedded chip, encrypts it client-side, and feeds it into a garbled circuit. The circuit confirms validity, checks age and jurisdiction, and can even query a public database such as Interpol's stolen-passport list without revealing the passport number. The exchange receives the output it needs, which may simply be TRUE, and grants access. Where an audit later requires more, selective disclosure through the on-chain access list (ACL) provides exactly the scoped visibility the auditor is entitled to, and nothing else.

Safer for Web3, and for Web2 too

The same construction makes conventional services safer. Any provider that verifies identity can stop accumulating plaintext passports: the data never leaves the user's device unencrypted, so there is no honeypot to breach. In a world where mass data leaks have become routine, proving facts about identity without holding the identity data is simply better engineering.

This is the bridge: TradFi keeps its compliance, DeFi keeps its self-custody and permissionlessness, and the sensitive data that used to sit exposed in the middle is encrypted end to end.

To go deeper, read how Bubble works or talk to our team.