UBS and Nethermind have completed two proofs of concept on the Ethereum Sepolia test network demonstrating that banks can embed compliance controls directly into Ethereum’s block production pipeline, rather than just in smart contracts. The work follows a joint whitepaper that Nethermind published with Deutsche Bank in May 2025 covering the same architectural territory. Together the initiatives signal growing institutional urgency around a specific regulatory problem.
The Basel Committee on Banking Supervision currently treats all tokenized securities on permissionless blockchains equivalently to cryptocurrencies, attracting punitive capital requirements. That position is under review.
Most compliant institutional activity on permissionless chains today operates at the application layer. Token smart contracts use allow lists to restrict who can hold and transfer. Issuers retain the ability to freeze tokens and reassign ownership. Platforms build in redundancy so that if something goes wrong, tokens can migrate to a different network.
But none of that addresses deeper infrastructure level concerns. It does not deal with the governance of the chain itself, with MEV and front running (which constitutes illegal market manipulation in most jurisdictions), or with the fact that banks transacting on Ethereum have no control over which counterparties process their transactions and receive their gas fees. This is the gap that the UBS and Deutsche Bank work with Nethermind is trying to close.
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