The risks of permissionless blockchains for financial institutions and how a hybrid approach can solve them

The tokenisation of real‑world assets is poised to revolutionise financial markets by bridging the gap between traditional finance and DeFi. However, institutional adoption of blockchain technology remains slow owing to concerns over compliance, governance and security.

To address these challenges, Rayls introduces a hybrid blockchain architecture that combines the strengths of both permissioned and permissionless systems. This innovative approach enables financial institutions to operate securely, efficiently and at scale, whilst remaining fully compliant with regulatory requirements.

The institutional blockchain dilemma

Financial institutions face a difficult choice when selecting blockchain infrastructure. Permissionless networks offer transparency and liquidity but introduce governance issues, compliance risks and security vulnerabilities. Conversely, permissioned blockchains provide strong security and regulatory control, yet suffer from limited liquidity and poor interoperability.

Limitations of permissioned blockchains

Permissioned blockchains restrict access to verified participants, delivering a secure, compliant environment. However, their closed nature limits liquidity and prevents seamless integration with broader financial markets. Without interoperability, tokenised assets remain isolated, reducing efficiency and accessibility.

Risks of permissionless blockchains

The Bank for International Settlements (BIS) report “Novel Risks, Mitigants and Uncertainties with Permissionless Distributed Ledger Technologies” highlights fundamental risks that impede institutional adoption:

• Governance risks: decentralised models create accountability challenges, hindering due diligence and oversight.

• Security vulnerabilities: permissionless networks are susceptible to attacks (e.g. 51 % attacks), risking financial loss and undermining trust.

• Legal and compliance risks: pseudonymity complicates AML and KYC enforcement, elevating the risk of illicit activity.

• Liquidity risks: although permissionless systems offer liquidity, they lack institutional safeguards, exposing participants to regulatory uncertainty and potential market manipulation.

These findings demonstrate that neither purely permissioned nor purely permissionless models alone satisfy institutional requirements. A hybrid approach is therefore essential to balance security, compliance and liquidity.

Rayls’ hybrid model: the best of both worlds

Rayls resolves these trade‑offs through a dual‑layer blockchain architecture:

• Rayls Public Chain: a permissionless Ethereum Layer 2 (L2) blockchain where all participants undergo mandatory KYC, ensuring compliance whilst retaining access to DeFi liquidity.

• Rayls Private Subnets: customisable, permissioned environments in which financial institutions operate with full privacy, security and regulatory control.

This hybrid model allows institutions to harness decentralisation’s benefits while guaranteeing compliance, security and operational efficiency.

Addressing BIS‑identified risks

Rayls’ architecture directly mitigates the BIS‑highlighted concerns:

• Governance and security: private Subnet Governors ensure robust oversight and accountability.

• Regulatory compliance: mandatory KYC on the public chain and cryptographic attestations (e.g. zero‑knowledge proofs) for user verification.

• Privacy and institutional-grade security: homomorphic encryption enables confidential transactions with auditable records.

Comparative analysis

Conclusion

By integrating permissioned and permissionless capabilities, Rayls provides the most advanced RWA infrastructure available to financial institutions. Its hybrid model ensures regulatory compliance, institutional‑grade security and scalability, while maintaining access to liquidity and DeFi innovation. As institutional blockchain adoption accelerates, Rayls stands as a future‑proof solution for digital finance.

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