DeFi executives at the World of Web3 (WOW) Summit in Hong Kong stressed that implementing “Know Your Customer” (KYC) measures will solve the “biggest problem” in decentralized finance (DeFi), which is hackers laundering millions of stolen funds into “clean money.”
During a panel session at the March 29 summit, titled “Blockchain Security to Smart Compliance: AML & KYC Solutions in DeFi,” industry leaders endorsed KYC in DeFi as a solution to address Anti-Money Laundering (AML) issues.
Dyma Budorin, CEO of smart contract auditing firm Hacken, warned of the prevalence of tools available to hackers to “launder money” stolen from DeFi platforms, which he described as the “biggest problem” in the industry.
He explained that hackers can easily steal millions of dollars and launder the funds into various wallets “to make the money clean again,” making it difficult to trace the source of the funds.
“KYC is about transparency and accountability. I don’t think it’s a problem for the majority of people. I’m sure 99% of people have nothing to hide. I like to see it as part of our world.
However, Victor Yim, head of fintech at Hong Kong entrepreneurship incubator Cyberport, suggests that KYC alone will not solve all AML problems.
Yim explained that even in traditional finance, where KYC measures are important, “there is still money laundering every day.”
Blockchain Security for Smart Compliance: #AML & #KYC for #DeFi The path to compliance is: Now is the best time to prove that Defi can be safe and compliant @jessecogo of @Cointelegraph @buda_kyiv @tyyim Alexander Scheer @WOWsummitWorld pic.twitter.com/Lk5mnhMKDS
— Charu (@Charu_Sethi) March 29, 2023
However, he believes that KYC measures will create a “better tomorrow” for the DeFi industry, adding that it will require a collective effort, including “regulators, policymakers, bureaus and other players,” to be successful.
related: Binance launches internal investigation after KYC bypass rumors
Yim cited the “anonymous trackable” concept as an example of a balance between anonymity and compliance, with individuals remaining anonymous unless called by law enforcement, adding that it “protects the good guys while still getting the bad guys.”
Alexander Scheer, founder of zkMe, emphasized that different mechanisms should be used for different solutions, because crypto mixers, for example, “must be handled differently” for the DeFi front end, and on- and off-ramp.
Scheer also touched on regulation, stating that the DeFi industry needs to proactively take the lead and “front-end” regulations before they are enforced by regulators.