The integration of KYC Uniswap who is deployed by Purefi, but not all are convinced
Zero-Knowledge Proof (ZK-Proof) -Based Compliance Protocol Purefi has launched this known customer (KYC) and anti-money laundering (AML) integration for Uniswap Decentralized Exchange (DEX).
According to a recent announcement shared with cointelegraph, Purefi claims that ZK-proof-based KYC and AML integration for Uniswap helps address security concerns and compliance with protocol levels. While the integration can be implemented as part of any Uniswap V4 pool, it deployed as part of the implementation of Purefi Dex Uniswap, replacing common interfaces with custom compliance with routers.
The new platform of decentralized finance (DEFI) also introduces verification based on level checks of scales based on transaction volume. The checks come from the basic identification and verification of the penalty in low volume to the comprehensive KYC with a wallet marking based on risk and real-time high-volume monitoring.
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Not all are riding
Hedi Navazan, the chief of compliance with the Dex Aggregator Developer 1inch Labs, told Cointelegraph that “relying on transaction volume thresholds for progressive compliance implementation is not, in my view, the right approach.” He shared concerns that such thresholds “failed to capture the wider, more complex risk profile that financial ecosystems demanded.” He explained:
“Risk analysis should be holistic, considering a variety of factors, not just a single indicator such as transaction volume.”
Purefi CEO Slava Demchuk said the compliance is usually implemented in front-up (the user interface) and not under the basic back-end contracts. The implementation leaves the protocols “vulnerable to the bypass interface” of evil actors who are in contact with intelligent contracts. She explained the benefits of the latest Purefi implementation:
“Through the Uniswap V4 hook, we refer to a long -blind industry. The defi needs a middle ground to maintain privacy but align with regulatory standards.”
Purefi uniswap v4 hook infographic. Source: Purefi
So far, the exchange is full operation for the UFI/BNB trading pair; This implementation is meant to be a blueprint where to be built. Modular design allows offchain updates to compliance policies, conducting the component to change as regulations emerged to allow for easier adaptation.
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Defi’s long battle in compliance
Navazan said, “In Defi, we need a more appropriate approach.” According to him, solutions developed for centralized finances are not suitable for its decentralized counterparts due to various priorities:
“The mechanisms that work with centralized finances do not work in decentralized space, appreciating privacy and autonomy,” he added.
Navazan explained that this difference is “a critical aspect for the issue of compliance with the crypto and defi.” He raises concerns that while mixers and privacy coins are in the regulator watches, using ZK-Proofs can help:
“If zero-knowledge proofs can provide the following privacy, regulators may be more likely to allow financial instruments that maintain privacy.”
He added that the regulation of regulatory is “the biggest challenge to this day” for the defi, with regulators equal to “financial transparency to see every transaction and identity.” He noted that the ZK-Proofs changed that model and asked if the regulators would adopt proofs instead of raw data.
ZK-Proofs is a family of advanced cryptographic protocols that allow math that proves an aspect of some pieces of data without announcing the underlying data. For example, they may show that a creature is not punished and allows to use a financial service – without providing full documentation and private data and while remains unknown.
A proper ZK-proof implementation ensures that no additional data has been spread beyond the fact that the proven claim is valid. Those proofs are also good data-wise because they can be smaller than considered data, making them better for onchain storage as needed, as Occurs in ZK-Rollups.
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