Anti-money laundering regulatory frameworks and decentralized finance adoption: a cross-jurisdictional analysis

This study examines the relationships between national cryptocurrency regulation, anti-money laundering (AML) risks, and decentralized finance (DeFi) adoption across global jurisdictions. Using correspondence analysis, correlation techniques, and regression modeling with control variables, we analyze data from the Basel AML Index and Retail DeFi Rankings to identify structural patterns in the interaction between regulatory frameworks, institutional quality, and digital asset ecosystems. The results reveal a counterintuitive global distribution in which advanced economies with strong regulatory regimes and low AML risks tend to exhibit limited retail DeFi activity, whereas jurisdictions characterized by weaker institutions and higher money laundering risks show significantly higher levels of DeFi usage. Further, the correspondence analysis identifies three distinct clusters of countries defined by specific configurations of regulatory approaches, AML effectiveness, and DeFi adoption, indicating that these relationships are configurational rather than purely linear. Robustness checks demonstrate that qualitative features of regulatory regimes are more strongly associated with DeFi adoption than conventional quantitative indicators of economic development or governance quality, thereby distinguishing DeFi diffusion from broader cryptocurrency usage dynamics. Mediation analysis provides partial support for a compensatory pattern: financial inclusion is a significant negative predictor of DeFi adoption, though a statistically confirmed mediation pathway between AML risk and DeFi activity through financial exclusion was not established. The study also highlights substantial global regulatory fragmentation, with 57% of jurisdictions classified as “Undecided” or “Improving,” underscoring the ongoing difficulty of reconciling financial innovation with stability and risk mitigation. These findings provide evidence-based guidance for policymakers designing adaptive regulatory frameworks and establish a foundation for further research on the evolution of digital finance regulation.