AI-based Crypto Transcations Monitoring for both CeFi and DeFi companies launched!

SmartCredit.io
SmartCredit.io & ChainAware.ai
5 min readMar 10, 2023

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SmartCredit.io is excited to launch AI-based Crypto Transactions Monitoring for CeFi and DeFi companies!

Blockchain companies can now use our real-time AI-based API to verify the addresses before submitting transactions, this will allow:

  • Fulfilling regulatory requirement of crypto transactions monitoring,
  • Aswell, as increasing the security of the platforms.
AI-based Crypto Transactions Monitoring

AML versus Transactions Monitoring

Virtual Asset Service Provider regulations mandate the providers to:

  • do the AML
  • do the Transactions Monitoring

While many tools are available for the AML, only minimal and very costly tools are available for monitoring transactions.

So, most of the CeFi service providers focus mainly on the AML by stating “we can verify all participants in the transactions, hence the transaction monitoring requirements are fulfilled.

However, transaction monitoring is more than AML checks. It requires identifying fraudulent transactions before executing the transactions.

That’s what we offer with our product the Crypto Fraud Score — if your counterparty wallets do not have a good score, the crypto fraud score will analyse the wallet and detect fraud and will advise you not to transact with them.

Regulatory requirements of Transactions Monitoring

Transactions Monitoring is the standard regulatory requirement used in traditional finance. All incoming and outgoing transactions go through Transactions Monitoring Systems, usually Artificial Intelligence-based systems.

Crypto Transactions Monitoring is mandated for the CeFi (Centralized Finance) companies too. However, since there is no tools available, CeFI companies usually explain to the regulators that they can do only KYC and AML.

It’s pretty possible that DeFI companies will be classified as Virtual Asset Service Providers in the near future and Transaction Monitoring Requirements will be applied to DeFi companies too.

Nevertheless, DeFI companies can also benefit from implementing real-time transaction monitoring to increase the security of their platforms. For example, SmartCredit.io has integrated AI-based Transactions Monitoring — every wallet connected to the application is automatically analysed. If there is a high probability of fraud detected with the wallet and probability is high and the wallet is not valid, then transactions are not enabled.

Forensic Analytics versus Predictive AI Analytics

There are several (costly) tools available for forensic analytics to tell whether an address was involved in a scam. These often are very costly tools as they analyse the past transactions within the wallet and create a database of the so-called “bad addresses”.

With scammers and hackers getting more smarter they are not using the old addresses that were involved in previous scams so they prefer to use new ones with no fraudulent transaction history, which are not yet recorded in the forensic databases. Hence it’s called forensic analytics — it can only state the facts after the event has occurred which in this case is a hack or fraud…

Therefore we need predictive analytics — it’s about analysing the interaction patterns and predicting the possibility that these interaction patterns will result in the scam in the future.

That’s why in the world of traditional finance, transactions monitoring is always based on the predictive AI analysis.

How can we predict the future?

The only information we use is the blockchain address and the interaction patterns with other addresses within that chain. Our AI product ChainAware.ai analyses these addresses in real-time when you submit the fraud check queries on the website.

Cryptocurrency has many scammers within the space trying to scam the retail investor and many hackers are looking for easy money, all you have to do is connect your wallet to a website that is a scam and all your assets can disappear and All of them will leave traces in the blockchain transaction history.

Every scam is different and there are unlimited potential scams. But scammers use specific interaction patterns and leave their transaction history in the blockchain. The amount of interaction patterns is limited, while the number of potential scams is unlimited.

Our artificial intelligence product identifies fraud interaction patterns and forecasts the future behaviours of the addresses based on past interaction patterns.

Our current predictive power is 98%. How can we say that we have 98% forecasting power?

There is a public database — https://cryptoscamdb.org/. A forensic database, where the scam and fraud addresses of previous transactions are stored. For example, https://etherscan.io and https://app.mycrypto.com allows the forensics database to identify the scams.

Our algorithm does not use the addresses listed in https://cryptoscamdb.org/ . However, our AI algorithm recognizes 98% of the addresses stored in the CryptoScamDB database as addresses used for fraud.

Transactions Monitoring

Crypto Transactions Monitoring is a regulatory requirement for all Virtual Asset Service Providers. It means verifying all the platform incoming and outgoing transactions and not letting fraudulent accounts participate in the business transactions.

Transactions Monitoring is implemented in traditional finance via Artificial Intelligence; there is a lot of data for the AI-Algorithms — addresses, credit card histories, account histories, device databases, etc.

In the blockchain industry, however, we only have the blockchain address. All the enriched data which is available in traditional finance is missing in the crypto sector.

SmartCredit.io offers AI-based Crypto Transactions Monitoring. It can be used by both CeFi and DeFi companies and will allow them to track and detect fraudulent addresses used by scammers and hackers. See more below how to use our product:

CeFi Use Cases

AI-based Crypto Fraud Score enables Transaction Monitoring for the CeFi (Centralised Finance) companies:

  • CeFi companies can use https://swagger.chainaware.ai in the subscription model
  • This real-time API should validate all transacting addresses (incoming or outgoing).
  • If addresses are flagged as potential fraud addresses, then additional verifications (sometimes manual verifications are required).

DeFi Use Cases

AI-based Crypto Fraud Score enables Transaction Monitoring for the DeFi (Decentralized Finance) companies:

  • DeFi companies can subscribe to https://swagger.chainaware.ai
  • Validate the user addresses real-time when users connect to your Decentral Application with this real-time API
  • If addresses are flagged as potential fraud addresses, then do not allow the address to connect via Web3 API
  • The impact of this integration is increased security of the Dapp

SmartCredit.io Case Study

SmartCredit.io has integrated Crypto Transaction Monitoring API. If addresses are flagged as potential fraud or scam, then:

  • Loan requests from the respective addresses are not matched
  • Fixed Income Funds from the respective addresses are not matched
  • Staking rewards are not distributed
  • Fiat on-ramp/off-ramp services are not enabled

The impact of this integration is increased security of the platform.

About SmartCredit.io

SmartCredit.io has implemented many innovative technologies and business concepts:

SmartCredit.io vision is to become AI-driven self-custodial neo-bank.

Additional Info

AI & Big Data: https://chainaware.ai

Twitter: https://twitter.com/ChainAware

Borrow & Lend: https://smartcredit.io

Twitter: https://twitter.com/Smartcredit_io

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