The world of decentralized finance is at a crossroads. As blockchain applications scale from experimental protocols to infrastructure that could become the "global financial settlement system," a critical question emerges: How do you build compliant, regulated financial products on permissionless blockchains?

In a fascinating episode of Exploring the AI Rainforest, host Derek E. silva sits down with Nikhil Raghuveera, co-founder and CEO of Predicate, to explore this exact challenge. What makes this conversation particularly compelling is Nikhil's unique journey from policy work at Washington D.C. think tanks like the Atlantic Council to building cutting-edge blockchain infrastructure.

Nikhil's path to founding Predicate wasn't typical for a crypto entrepreneur. Starting in economic consulting and management consulting, he found himself at the Celo Foundation working on strategy and innovation, helping launch major integrations like Uniswap and LayerZero on the Celo blockchain. But it was his parallel work in policy—explaining how DeFi actually works to regulators and policymakers—that revealed a critical gap in the market.

"Even before we can get to specific policies," Nikhil explains, "you have to spend a few years just explaining how the technology works, explaining why it matters." This educational work at institutions like the Atlantic Council gave him a front-row seat to the regulatory challenges facing blockchain applications.

Here's where things get technically interesting. Predicate has built what they call "policy infrastructure for blockchain applications"—a system that allows developers to define and enforce rules on-chain in real-time. Think AML checks, geo-restrictions, or behavioral limits, all happening at the smart contract level with sub-second latency.

But why does enforcement need to happen at the smart contract level? As Nikhil points out, "Otherwise it's bypassable, right? You don't actually have a real policy in place." Anyone could simply interact directly with the smart contract or build their own front-end to circumvent front-end-only restrictions.

The solution is elegant: Predicate issues cryptographic signatures that attest to a transaction's validity against defined policies. Transactions only execute if they carry a valid Predicate signature, making the enforcement truly decentralized and tamper-proof.

The conversation touches on real-world examples that make this concrete. Franklin Templeton, the massive financial institution, is now running money market funds on eight different blockchains. They're seeing significant efficiencies that they can pass back to investors, but they still need to enforce KYC and AML requirements across different jurisdictions.

Predicate's approach could enable "Franklin Templeton-like restrictions in a positive way"—allowing compliance without sacrificing the permissionless nature that makes blockchain technology so powerful. You could have a Uniswap-style decentralized exchange that automatically enforces AML policies without requiring traditional KYC for every user.

What sets Predicate apart isn't just the technology—it's their philosophical approach. The team has authored a manifesto on "values expression," arguing that every transaction inherently expresses values. When you choose to buy shoes from a reputable store rather than "a back alley that has clearly stolen goods," you're making a value judgment.

This philosophy shapes their product design in important ways. They're not just building compliance tools; they're building infrastructure that allows applications to align with their users' values while remaining accessible and decentralized.

The episode concludes with Nikhil's excitement about several emerging areas:

• Real-World Assets (RWAs): Both stablecoins and tokenized securities like money market funds

• DeFi Infrastructure: Particularly vaults and liquidity pools that need compliance features

• Privacy: With projects like Aztec and Maiden launching, focusing on product-oriented development rather than just infrastructure

On privacy, Nikhil makes an insightful comparison to Apple: "It's not that we go and use Apple because it's private relative to Android. It's that it just is a good product, right? And it has privacy baked into it."

This conversation illuminates one of the most important challenges facing blockchain adoption: building the connective tissue between permissionless protocols and regulated markets. As traditional financial institutions like Franklin Templeton move on-chain, and as DeFi protocols handle increasingly large volumes, the need for programmable compliance infrastructure becomes critical.

Predicate isn't trying to make blockchains more centralized—they're trying to make compliance more programmable and decentralized. It's a nuanced but crucial distinction that could determine whether blockchain technology truly becomes the global financial settlement system its proponents envision.

Listen to the full episode on Spotify, YouTube, or your favourite podcast player to dive deeper into the technical implementation details, learn about Predicate's partnership with compliance data providers like TRM, and understand how policy infrastructure might shape the next generation of on-chain financial products.