The Institutional Blockchain Trilemma

Institutions have long faced a difficult trade-off known as the Institutional Blockchain Trilemma. This trilemma forces a choice among three essential properties: liquidity, privacy, or interoperability. Each choice traditionally comes with an unacceptable compromise, creating a barrier that has kept many institutions on the sidelines.

Why Are Institutions Stuck?

Historically, every path for institutions has led to limitations.

1. Interoperability + Liquidity (No Privacy)

   Standard public blockchains such as Ethereum offer a universe of interoperable applications and deep established liquidity. Transactions, balances, and interactions are all publicly visible, however, creating significant operational security and compliance risks. Sensitive data such as trading strategies, asset positions, and payroll information are exposed, making this model unsuitable for regulated institutions.

2. Privacy + Liquidity (No Interoperability)

   Centralized exchanges provide privacy and access to deep order books while keeping activities confidential. Yet this comes at the expense of interoperability. Institutions cannot engage with decentralized protocols, use assets as collateral in lending platforms, or contribute liquidity and participate in advanced strategies. They remain limited to basic trading, missing the broader value-generating economy of decentralized finance.

3. Interoperability + Privacy (No Liquidity)

   Some niche privacy-focused protocols have attempted to combine interoperability and privacy, but liquidity has remained elusive. Without sufficient liquidity, institutions face massive slippage, poor price discovery, and limited ability to execute large trades. The lack of capital prevents adoption, and the absence of adoption further suppresses liquidity, creating a fragmented and inefficient ecosystem.

Overcoming The Trilemma

So, how do we solve this impossible trilemma and achieve Interoperability + Privacy + Liquidity?

A true solution must be built on a foundation of auditable privacy, allowing for privacy that doesn't default to isolation and total, uncompromising privacy. This technology must be designed from the start to be interoperable, capable of communicating and transacting with other systems and protocols without revealing confidential data.

By integrating privacy and interoperability at a protocol level, institutions can securely connect to the broader ecosystem. This connection unlocks access to global liquidity pools that were previously inaccessible. Assets can now remain confidential while participating fully in markets, clearing the way for real adoption.

The challenge was never whether liquidity, privacy, and interoperability could coexist. The challenge was how to achieve it. Advances in cryptography and protocol design have made it possible to resolve this trilemma and provide institutions with a foundation that does not require compromise.