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Abstract

Regulatory compliance is increasingly mandatory for decentralized finance and privacyenhancing technologies. However, current compliance methodologies rely either on fragile binary inclusion/exclusion lists or continuous, retroactive graph analysis by centralized blockchain intelligence firms. This traditional approach strips honest users of their financial privacy, leads to false positives and negatives, and forces decentralized platforms to bear the heavy burden of on-chain transaction monitoring. In this work, we propose a paradigm shift: moving from platform-side surveillance to user-side provenance. We introduce Proof of Source of Funds (PoSoF), a novel cryptographic framework that shifts the computational and analytical burden to the individual users. Rather than the platform tracing funds, the user locally generates a zero-knowledge proof demonstrating that their deposit originates exclusively from a set of compliant sources. The platform is thus relieved of chain-analysis duties, requiring only a constant-time, O (1) verification to enforce admission control.