Decentralized Finance (DeFi) is revolutionizing the finance industry by offering financial services that are free from central authorities and intermediaries. However, with the advantages of DeFi come challenges, particularly in terms of security and compliance. As the industry grows, so does the risk of money laundering, making Know Your Customer (KYC) measures increasingly relevant.
During a panel session at the World of Web3 (WOW) Summit in Hong Kong, DeFi industry executives endorsed KYC in DeFi as a solution to tackle Anti-Money Laundering (AML) issues. The industry leaders argued that KYC measures would address the biggest issue in DeFi, which is hackers laundering millions of stolen funds into “clean money.”
Blockchain Security to Smart Compliance : #AML & #KYC for #DeFi Path to compliance is : Now is the best time to prove that Defi can be secure and compliant @jessecogo from @Cointelegraph @buda_kyiv @tyyim Alexander Scheer @WOWsummitWorld pic.twitter.com/Lk5mnhMKDS— Charu (@Charu_Sethi) March 29, 2023
Dyma Budorin, CEO of Hacken, warned of the prevalence of tools readily available to hackers to launder money stolen from DeFi platforms. Budorin described this as the “biggest issue” in the industry. He explained that hackers can easily steal millions of dollars and launder the funds into various wallets to make clean money again, making it difficult to track the source of the funds.
However, some DeFi industry executives believe that KYC alone won’t solve all AML problems. Victor Yim, head of fintech at Cyberport, Hong Kong’s incubator for entrepreneurship, said that even in traditional finance, where KYC measures are prominent, “there is still money laundering happening every day.”
Despite this, Yim believes KYC measures will make a “better tomorrow” for the DeFi industry. He added that it will require a collective effort, including “regulators, policy, bureau and other players,” to execute successfully. Yim cited the concept of “anonymous traceable” as an example of a balance between anonymity and compliance, with individuals remaining anonymous unless called upon by law enforcement.
Alexander Scheer, founder of zkMe, emphasized that different mechanisms should be used for different solutions. For example, crypto mixers need to be handled completely differently to DeFi front-ends, on- and off-ramps.
Scheer also touched on regulations, stating that the DeFi industry should proactively take the lead and “front run” regulations before they are imposed by regulators.
While some may have concerns about privacy and data protection, the industry leaders argued that KYC is about transparency and accountability. Budorin said, “KYC is about transparency and accountability. I don’t think it’s an issue for a majority of people. I’m sure 99% of people don’t have things to hide. I’m happy to see it as part of our world.”
In conclusion, DeFi industry executives believe that KYC measures can help tackle AML issues and promote a more secure and compliant industry. While KYC alone may not solve all AML problems, it is an essential step towards building a better tomorrow for the DeFi industry.
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