Melon(u)Port as a KYC/AML Participation module to investors in Melon funds

As Melon protocol evolves, our vision is for it to one day underpin the world’s entire wealth management industry creating a place where people can easily find and discover transparent, secure and reliable investment products.

In order to make this a reality, we have to start thinking about institutional needs as well as regulation in this new blockchain technology. Recently MAMA was formed in order to tackle some of the regulatory needs as technology evolves. However, there are some things, we can already guess with a reasonable degree of certainty that will be a requirement at the institutional level.

This blog tackles participation in Melon funds and in particular looks at a potential KYC/AML solution we have crafted together with u-Port and the Canton of Zug.

In our 0.4 release of Melon, a new feature was enabled. The possibility to whitelist public addresses that can invest in Melon funds. This is not compulsary but it is a user option. This enables managers who have to comply with certain KYC/AML restrictions to be able to permission investors into their funds after completion of a KYC/AML process. KYC/AML providers like u-Port can build their own “participation” modules and perform this KYC/AML process on the manager’s behalf to ensure that investors adhere to a certain list of criteria required to invest.

The u-Port participation module will look like this;

Alice downloads the u-Port app and create an account. In this moment, the mobile app creates a private key and deploys smart contracts on the Ethereum network that represent a user’s identity. Alice is in complete control of her identity and it’s associated data. Read more about uPort’s core architecture and identity contracts here.

With her uPort ID Alice now visits the website of the City of Zug at www.stadtzug.ch. Here, she scans a QR code to interact with the identity of the City of Zug for the first time. Thus, the City has its own identity on the Ethereum network that allows it so sign and verify data with its own private key. Access to this identity is managed by the City clerk, who again interacts with the lead identity with his own uPort identity with specific admin rights.

Once Alice entered her date of birth and passport number on the website of the City her request is cryptographically signed with her private key and sent to the city. She now has 14 days to visit the City’s Einwohnermeldeamt (citizen registration office) for an in-person verification of her passport to confirm that the details provided today. Once confirmed, the City issues Alice a verified attestation that is signed by the City’s identity.

The attestation is a data piece that contains her submitted information and is stored on her phone in an off-chain environment. The fact that the attestation lives on her mobile device, or other secure cloud storage solution means that her private information is not publicly accessible in any way. Alice chooses which service provider or dapp she wants to share this information with to identify herself.

Alice is now able to interact with the online services of the City of Zug in a seamless way. In a first use case the City will pilot an e-voting application, as well as several other services.

In the above example, uPort is being used in a traditional client-server model with the added security of distributed blockchain based identities. However, this attestation could also be shared with any other service provider, or dapp, such as a Melon fund, or a Slock.it lock.

We envision this ID to evolve into a critical tool in future. It provides a very nice use-case for us that doing a simple KYC/AML on investors is indeed possible. With this integration complete, we can see a possibility for the first KYC/AML’d investors in Melon funds to beZug residents. This use-case is just one step towards getting institutional buy-in for Melon funds.

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