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Decentralized finance (DeFi) has skilled great development lately, with its whole worth locked (TVL) surpassing $100 billion in August 2021. Nevertheless, the shortage of regulation and the prevalence of cyber assaults pose vital challenges for the trade. Probably the most urgent points in DeFi is the laundering of thousands and thousands of {dollars} stolen from DeFi platforms into clear cash. To fight this, DeFi executives on the World of Web3 (WOW) Summit in Hong Kong have argued that implementing Know Your Buyer (KYC) measures can deal with the issue.
Throughout a panel session titled “Blockchain Safety to Good Compliance: AML & KYC Options in DeFi,” trade leaders endorsed KYC as an answer to deal with Anti-Cash Laundering (AML) points. Dyma Budorin, the CEO of sensible contract auditing agency Hacken, warned of the prevalence of instruments available to hackers to “launder the cash.” He described it because the “largest situation” within the trade, the place hackers can simply steal thousands and thousands of {dollars} and launder the funds into varied wallets, making it tough to trace the supply of the funds. Due to this fact, he believes KYC is about transparency and accountability, and it must be a part of the trade.
Nevertheless, Victor Yim, the top of fintech at Hong Kong’s incubator for entrepreneurship, Cyberport, advised that KYC alone wouldn’t remedy all AML issues. He defined that even in conventional finance, the place KYC measures are outstanding, “there’s nonetheless cash laundering taking place on daily basis.” Regardless of this, Yim believes KYC measures could make a “higher tomorrow” for the DeFi trade. He added that it might require a collective effort, together with regulators, coverage bureau, and different gamers, to execute efficiently. He cited the idea of “nameless traceable” for instance of a stability between anonymity and compliance, the place people stay nameless except known as upon by regulation enforcement, including that it’ll “shield the nice folks whereas nonetheless getting the dangerous folks.”
Alexander Scheer, the founding father of zkMe, emphasised that completely different mechanisms must be used for various options. For instance, crypto mixers must be dealt with otherwise from DeFi front-ends and on- and off-ramps. Scheer additionally touched on rules, stating that the DeFi trade ought to proactively take the lead and “entrance run” rules earlier than they’re imposed by regulators. This proactive method might assist to make sure that rules don’t stifle innovation within the trade.
In conclusion, implementing KYC measures in DeFi might improve transparency and accountability within the trade, making it harder for hackers to launder stolen funds. Nevertheless, it’s essential to acknowledge that KYC alone will not be a panacea for AML points, and completely different mechanisms must be used for various options. The DeFi trade ought to collaborate with regulators and different stakeholders to develop efficient options that stability compliance with innovation, safeguarding the pursuits of all stakeholders, and stopping dangerous actors from exploiting the system.
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