DeFi’s AML/KYC Problem: How PureFi Protocol Offers a Solution

The DeFi market has seen explosive growth, but this boom has also attracted unwanted attention from regulators due to concerns about money laundering and terrorist financing. Unlike CEX, DEXs typically operate without KYC or AML procedures. This lack of regulation creates a grey area and makes DeFi susceptible to illegal activities.

The statistics paint a concerning picture. In 2020, an estimated $34 million worth of DeFi transactions were linked to criminal actors. Chainalysis, a blockchain analysis company, predicts this number to rise exponentially, posing a significant challenge for the DeFi market’s future. This lack of AML/KYC compliance also makes DeFi unattractive to institutional investors and credible financial institutions.

The Problems of DEX Liquidity

The DeFi ecosystem relies heavily on liquidity pools, where users contribute their crypto assets to earn rewards. However, this system exposes liquidity providers to the risk of receiving “dirty” assets from bad actors using the platform to launder money. Liquidity pool operators also face challenges.

Some operators want to offer compliant and regulated services, while others seek to maintain full decentralization. Both types of operators would benefit from working with verified counterparties and traditional financial institutions.

A Solution for DeFi’s AML/KYC Woes

PureFi Protocol proposes a solution to DeFi’s AML/KYC woes using Verifiable Credentials, a machine-readable standard for presenting data. PureFi’s protocol analyzes crypto wallets and transactions against AML databases and issues certificates based on this analysis. These certificates contain information about asset prices, AML/KYC compliance, and other relevant metadata.

Here’s what makes PureFi unique:

• Selective Disclosure: Verifiable Credentials allow users to share only the minimum amount of data required with validators, ensuring privacy.
• Zero-Knowledge Proofs: PureFi utilizes zero-knowledge proofs to generate secure data verifications that work with on-chain contracts. This enables users to obtain and validate PureFi certificates without relying on third parties.

By providing a secure and transparent AML/KYC solution, PureFi Protocol has the potential to bridge the gap between DeFi and traditional finance. This could pave the way for wider institutional adoption and continued growth of the DeFi market.

About PureFi Protocol

PureFi Protocol allows dApps to fully comply with local and global regulations while preserving decentralization and user anonymity.

Developed by AMLBot in partnership with Hacken Foundation to provide a full-cycle solution for crypto asset analytics and AML/KYC procedures for the Web3 infrastructure.