What is a KYC?
The independence from the government and monetary delegates implied that anyone could gain access to monetary administrations. Regardless, this angle turns out to be one of DeFi’s most significant setbacks. Concerns about information security and consistency with the capability of new guidelines for presenting new threats put a lot on the table for DeFi. There is no need to focus on the question of ‘Is KYC required for DeFi?’ Instead, consider ‘How can KYC help DeFi?’ The extent to which a DeFi arrangement supplier must address consistency has a significant impact on their options for carrying out (Know Your Customer) KYC on a DeFi arrangement.
Any business person or newly formed firm in the DeFi scene will undoubtedly need to stay on the right side of the law. It will help them gain institutional as well as corporate clients by referencing compliance with new guidelines. Regardless, will the DeFi and KYC mix separate the DeFi establishment?
Indeed, there are a variety of reasons why this is unlikely to be an issue. The new KYC and (Anti-money Laundering) AML guidelines do not imply that DeFi will lose its intrinsic value. Here are some of the reasons why KYC can function in DeFi while still serving as a decentralised method for completing monetary administrations.
Given that DeFi apps and software are about to be regulated as (Virtual Asset Service Provider) VASPs, the decision to implement KYC on a DeFi app is influenced by how seriously a DeFi provider takes compliance.
Compliance with emerging regulations will be critical for any company that wants to stay on the right side of the law and attract institutional or corporate customers.
Fortunately, there are a number of reasons why this isn’t necessarily a problem or something that should detract from DeFi’s inherent value as a decentralised approach to conducting and receiving financial services.
Having a robust and seamless KYC process in place as part of an AML/CTF (Counter-terrorist Financing) protocol has been shown to attract both private and institutional customers, rather than deter them. Extending customer bases can be accomplished by demonstrating that KYC and AML/CTF are taken seriously.
KYC does not always have to imply centralization. A DeFi platform or app can facilitate decentralized financial transactions while restricting platform access to users whose identities have been verified.
Personal identifier data does not need to be transferred to and/or stored by a DeFi platform, app, or VASP when using innovative KYC technology like KYC-Chain. KYC-Chain can perform end-to-end KYC checks on potential customers without requiring that customer data to enter a DeFi provider’s own database.
As DeFi platforms and applications gain popularity and expand their potential use cases, the (Financial Action Task Force) FATF has made it clear that it will not allow the space to fall outside of regulatory control.
According to the FATF, which is both a reflection and influence of national governments’ regulatory approaches, DeFi presents another potent tool for money laundering and other illicit financial activity.
The recent sanctioning of crypto currency exchange BitMEX by the US (Commodities and Futures Trading Commission) CFTC shows that regulators are not going to sit back and let exchanges and other DeFi platforms operate without KYC.
The risk of DeFi being used for criminal purposes is real. And, as DeFi grows in popularity, it is becoming clear that the space will be unable to achieve commercial and legal sustainability unless robust KYC and AML/CTF protocols are used.
As a result, according to the FATF, DeFi should be regulated and subject to the same AML/CTF regimes as other sectors of the financial industry. KYC is one of the primary tools that the global authority intends to employ in order to achieve this goal.
However, the ‘De’ in DeFi — that is, its decentralised nature — has created some complex challenges in terms of how it will work in practise.
Indeed, DeFi’s decentralised characteristics are a big part of why it’s such a powerful technological tool for individuals and businesses to manage and use their finances in the first place.
Read more about KYC’s here https://cryptegridy.com/defi/what-is-kyc
