Financial Services
Modernizing High-Risk Compliance Infrastructure at Paxos
De-risking regulated financial workflows where failures could trigger audit findings, settlement delays, or financial exposure.
Services Provided
High-Risk System Modernization, Compliance Workflow Automation, Risk-aware Incremental Change
Product Type
Technologies Used
Compliance and Settlement Platform
Ruby on Rails
Product Type
Compliance and Settlement Platform
Technologies Used
Ruby on Rails
Project Highlights
Reduced compliance risk — automation replaced manual processes, improving consistency and audit readiness
Settlement times reduced by 7× without introducing regressions or operational instability
Added Ethereum support without destabilizing existing Bitcoin and fiat workflows
About
Paxos is a regulated financial institution operating at the intersection of traditional finance and digital assets. Its systems support the movement of value across highly scrutinized workflows — where compliance, accuracy, and auditability are not optional.
In this environment, breaking things is expensive. Changes to compliance or settlement infrastructure can introduce regulatory exposure, settlement failures, or operational risk that is difficult to unwind once deployed.
Def Method was engaged to modernize critical compliance and settlement systems in a way that made change safe, without disrupting live operations or violating regulatory constraints.
Challenge
Key compliance and settlement workflows relied on manual processes and tightly coupled legacy systems. This created several high-risk conditions:
Compliance risk — Manual steps increased the likelihood of errors, inconsistent enforcement, and audit findings.
Reliability risk — Settlement workflows were slow and fragile. Failures could delay transactions and require manual intervention.
Revenue and operational risk — The system needed to expand support for new asset types (including Ethereum) without destabilizing existing Bitcoin and fiat workflows.
While modernization was necessary, a rewrite or aggressive refactor was not an option. These systems were already in production, governed by regulatory requirements, and tightly integrated with downstream processes. The challenge was to modernize incrementally — removing risk while preserving correctness, auditability, and continuity.
Solution
We approached the work as high-risk modernization, not feature delivery. Before expanding functionality, we focused on de-risking the system:
Stabilize compliance workflows — We identified and automated the most error-prone manual steps, reducing variability and improving auditability.
Preserve existing behavior while modernizing underneath — Legacy systems and new components ran in parallel during the transition, ensuring that compliance guarantees were maintained throughout.
Introduce safe boundaries for change — By isolating settlement logic and automating communication between parties, we reduced coupling and made future change more predictable and reversible.
The modernization effort focused on making compliance and settlement workflows safer, faster, and easier to evolve. Automated compliance requirements replaced manual enforcement, reducing error and fraud risk. Settlement workflows for precious metals were modernized, reducing settlement time from seven days to one. Ethereum support was added to an existing system that previously handled only Bitcoin and fiat, without destabilizing regulated workflows. Internal tooling connected traders, operations, and infrastructure through controlled, auditable interfaces.
Results
The modernization delivered concrete, risk-reducing outcomes. Automation replaced manual processes, improving consistency and audit readiness. Settlement times were reduced by 7× without introducing regressions or operational instability. Support for new asset types was added without rewriting or destabilizing existing systems. Modernization occurred without disrupting live operations or compromising compliance guarantees.
Most importantly, Paxos now has compliance and settlement infrastructure that can continue to evolve — safely — in a regulated environment where failure carries real cost.
In regulated financial systems, modernization is rarely blocked by technical difficulty alone. It's blocked by risk. Success in this engagement came from treating modernization as a risk-management problem first — identifying where change was dangerous, de-risking those areas, and only then enabling new capabilities.