Does Bitcoin need AML-compliant metaprotocols?

PlebFi 2025

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Josh Doman

Feb 6, 2025

- I opened a PR into ord for “AML-compliant freezable runes”

- Proved a little controversial

Controversy

Non-custodial Bitcoin capital markets require AML-compliance

• A growing number of public companies are adopting Bitcoin treasury strategies

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• Bitcoin users want access but do not want to sacrifice self-custody

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• Real world assets (stocks, stablecoins, etc.) fall under physical jurisdictions, which require issuers to comply with AML laws

Why AML-compliance?

(AML = Anti-Money Laundering)

What does AML-compliance look like?

• AML-compliance requires the ability to freeze or blacklist sanctioned addresses
• Requires an order from the relevant agency
• Ex: Office of Foreign Assets Control (OFAC)

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• Stablecoins and securities issued outside the US can otherwise remain freely transferable
• Securities issued within the US must be KYC’d on each transfer under current regulations

Why AML-compliance?

Recent news

(All OFAC-compliant, but freely transferable)

Why AML-compliance?

Why Runes over Taproot Assets?

Technical Deep-Dive

Transparency

Simplicity

Popularity

• Runes is an OP_RETURN based metaprotocol -> fully onchain

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• Taproot Assets requires off-chain proofs, and issuers can silently freeze balances at any time

• Runes is simple, minimalist, and easier for wallets and marketplaces to support

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• Taproot Assets requires integrations with each issuer’s “Universe”

• Runes has proven usage and is integrated into many wallets and PSBT-based marketplaces

How I built “freezable” runes

1. Issuers etch a freezable rune by including an admin tag that identifies the admin rune

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• Balances are frozen and unfrozen using freeze and unfreeze tags followed by a freeze edict
1. UTXOs are identified by the block number, tx index, and output index
2. Edicts are only authorized if an input contains the admin rune

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• Frozen balances are considered lost if spent
• Lost runes can be reissued by anyone who owns the admin rune

Technical Deep-Dive

(Uses even tag so that older versions of ord consider etching a cenotaph)

Future work

There are several areas where there’s room for improvement:

1. The admin rune should be explicitly non-upgradeable, so that users always know which balances are frozen

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• For DOS protection, freezing a UTXO should freeze all future UTXOs with the same scriptPubKey

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• For efficiency, issuers should be able to delegate, freezing all UTXOs with a scriptPubKey frozen by another rune

Technical Deep-Dive

Questions?