Why Blockchain-Based Identity Is Critical to the Future of Digital Assets
06.02.2025
This article draws on insights from a joint report by the Global Legal Entity Identifier Foundation (GLEIF) and Chainlink, exploring how blockchain-based identity systems can enhance trust and efficiency in global financial services.
Digital assets are rapidly reshaping the financial landscape, from tokenized assets and onchain funds to the continued growth and development of decentralized finance (DeFi). But as capital flows increasingly migrate to blockchains, one critical standardization issue remains unresolved: digital identity verification. This process is critical to both traditional finance and the still-burgeoning digital asset industry, yet it lacks an efficient, scalable, and secure solution.
In traditional finance, verifying the identity of legal entities is a prerequisite to virtually any institutional financial activity. Whether opening a bank account, trading in public markets, or investing in a fund, legal entities must prove who they are, and this requirement remains fundamentally important when interacting with digital assets. If anything, the complexity multiplies when interactions occur across multiple blockchains, jurisdictions, and financial instruments.
A recent survey by Fenergo on Know-Your-Customer (KYC) practices revealed that financial institutions across the UK, U.S., and Singapore dedicate approximately a third of their compliance budgets specifically to KYC activities. Globally, financial firms employ an average of 1,566 staff members for AML and KYC tasks, incurring an onboarding expense averaging $2,598 per customer. According to Fenergo, these costly and inefficient onboarding procedures have caused client attrition for 67% of banks and 74% of asset managers. These figures highlight the limitations of current identity frameworks and the rising need for scalable, verifiable alternatives—precisely the role Legal Entity Identifiers (LEIs) are designed to play.
What is an LEI?
The Legal Entity Identifier (LEI) is a 20-character, alphanumeric code that uniquely identifies legal entities participating in financial transactions. It connects to validated reference data about the entity, such as its legal name, ownership structure, and jurisdiction.
Born out of the 2008 financial crisis, the LEI was created to improve transparency in markets after the collapse of Lehman Brothers revealed major gaps in how entities were identified and linked. Without a standard to map exposure, regulators and counterparties struggled to assess systemic risk.
Today, LEIs are required in more than 250 jurisdictions for activities like derivatives trading and securities issuance. Over 2.7 million LEIs have been issued globally. The global LEI system is governed by the Global Legal Entity Identifier Foundation (GLEIF), a not-for-profit organization established by the Financial Stability Board to ensure transparency and open access to trusted entity identification data.
From LEIs to vLEIs: Bringing organizational identity onchain
The LEI standardized organizational identity in traditional finance—but the process remains offchain and of little use in real-time interactions with blockchain-based assets. The verifiable LEI (vLEI), developed and governed by GLEIF, can be connected to blockchains via the Chainlink Platform. Bringing vLEI onchain has the potential to reshape the traditional finance industry’s involvement in onchain financial activities by building confidence and clarity through standardization.
The vLEI uses cryptographic technology to prove the authenticity of an entity’s identity and credentials in real time. It renders traditional LEI data as a verifiable credential—a tamper-evident, machine-readable identity asset that can be validated across platforms, including blockchains. Once an organization has an LEI, a qualified issuer can generate a vLEI credential tied to a wallet or smart contract address. This can include role-based credentials—proving, for instance, that a CFO has authority to approve a transaction.
Both GLEIF’s work on global digital organizational identity and blockchain infrastructure built by Chainlink, the standard for onchain finance, support identity systems that are secure, work across different platforms, and easily connect with existing systems. GLEIF’s vLEI enables organizations to prove their identity off and onchain, while Chainlink’s technology enables firms to verify identity without exposing sensitive information and make identity portable across multiple blockchains and legacy systems.
Now, when that organization transacts—subscribing to a fund, issuing an asset, or joining a liquidity pool—counterparties can validate its identity with full cryptographic assurance.
The vLEI addresses key challenges:
- Trust: Organizations can prove their identity and authority.
- Security: Identity data is cryptographically protected.
- Efficiency: Verification becomes streamlined.
- Interoperability: Chainlink enables vLEIs to be used across chains and platforms.
Just as Chainlink has helped proof of reserves and net asset value (NAV) become foundational data points in digital assets, GLEIF’s vLEI can serve as a foundational identity primitive—enabling secure, transparent participation in onchain markets.
Unlocking trust in digital asset transactions
Digital assets are programmable. They can move fast and span multiple networks. But without trusted identity standards, they operate in a vacuum of verification. This, in turn, creates additional friction for asset managers, fund administrators, and institutional investors looking to engage more fully with blockchain-based markets.
Bringing LEIs onchain through vLEIs bridges that gap by enabling organizations to assert their legal identity within blockchain environments in a cryptographically verifiable way. It ensures that tokenized assets can be held, traded, and managed by known organizations under known authorities.
As BlackRock CEO Larry Fink noted in his 2025 letter to investors:
“One day, I expect tokenized funds will become as familiar to investors as ETFs — provided we crack one critical problem: identity verification.”
For digital assets to achieve their full potential—as a new layer of global financial infrastructure—digital identity must not only meet but exceed the expectations of the traditional financial industry and global regulatory bodies. vLEI shows real promise in addressing this need.
Blockchain-enabled identity in financial services
Blockchain-enabled identity offers a new approach: rather than uploading documents or manually validating entities, organizations can rely on cryptographic proofs tied to a digital identity. These proofs can be shared across platforms and verified instantly, without exposing sensitive underlying data. Chainlink’s infrastructure can help facilitate this process by enabling secure delivery and validation of identity proofs across diverse blockchains, supporting greater interoperability across the digital asset ecosystem.
Chainlink can make digital identity portable, secure, and interoperable. Whether issuing tokenized funds or accessing cross-chain liquidity pools, validating counterparties in a standardized, tamper-proof way is a game-changer.
To realize this opportunity, the industry needs a common identity language—one that bridges traditional finance and digital assets. Regulatory initiatives like the EU’s European Blockchain Services Infrastructure (EBSI) are already exploring decentralized identity as a trust layer for digital ecosystems, reinforcing the momentum behind this shift. The Legal Entity Identifier (LEI) and its digital platform-agnostic evolution, the verifiable LEI (vLEI), offer a promising foundation for building that shared identity standard.
All signs point toward a future where institutional-grade identity standards are a prerequisite for the next phase of financial innovation. Organizations like GLEIF are working to ensure that these identity standards remain open, globally recognized, and usable across both traditional and blockchain-based systems, with Chainlink enabling secure interoperability across blockchains and legacy systems.