Identity Compliance in Web3 and DeFi.
Decentralized Finance (DeFi) arose as an alternative to Traditional Finance that government bodies or other institutions don’t control. DeFi enables users more freedom, security, and control over their finances, unlike the traditional Web2 financial system that uses intermediaries such as banks, broker-dealers, and transfer agents. DeFi participants only need to rely on the blockchain’s public and immutable ledger of activity, as all public blockchains are fundamentally trustless and decentralized.
DeFi continues growing remarkably with over 4.5 Million live unique wallet addresses. It garnered widespread attention as a “trustless” system where users can transact feeling safe and confident without knowing or even trusting other users. With the growing demand, a decentralized identity solution that maintains anonymity and adheres to DeFi ethos is needed. But why? This year should tell us.
In recent months, DeFi has housed criminal activities such as smart contract hacks, rug pulls, cryptojacking, ice phishing, and more. These raise concerns about Web3 user security, which can impact the overall adoption. Of the many potential issues, two main concerns are the system’s vulnerability to fraud and users’ exposure to money laundering crimes.
Identity Compliance for Web3 applications is where we’d like to focus here. How important are they for DeFi’s growth, and how different are they from traditional identity solutions?
What is Identity Compliance?
A good user experience is crucial for any company or business to thrive. Without the safety and security of users, one cannot guarantee an excellent experience. This is where identity compliance comes into play.
One must prove that they can be trusted and will cause no harm to a company and its users. To achieve this, all users must comply with regulations and provide details that ensure authenticity and create their internet identity.
Identity compliance evolved with the advance of the internet, from when we had to only use usernames and passwords to identity-related data for business purposes between Web1 and Web2. However, Web3 was created to preserve anonymity, and decentralized and traditional Web2 identity compliance was deemed unfit for this transition. A lack of innovative technology capable of handling compliance in Web3 will hamper DeFi adoption.
The surfacing of these concerns called for protocols that could find the right balance in regulation and decentralization. Enter Identity Compliance for Web3.
Identity Compliance for Web3 through KYC and AML
Web3 is a paradigm shift for users to exercise freedom and privacy. What identity compliance means for Web3 differs from that of Web2. Traditional Web2 banking systems acquire user information that can vary from personal to professional for compliance, creating a more significant dependency on financial institutions.
So how does one follow compliance while preserving user privacy on a trustless system?
First and foremost, we need a secure regulatory platform that fits into a decentralized network. DeFi protocols for blockchain regulations are much needed for the growth of this industry as we have already established the importance of consumer protection for business growth.
KYC and AML processes for Web3 users must also ensure users’ authentication and protect them from money laundering scams. DeFi users have been the biggest target for financial crimes in the last ten months, and the need for decentralized compliance is now more than ever.
Astra’s Decentralized Legal Network
Astra is a decentralized compliance layer for the Web3 economy and ensures safety through its decentralized legal network.
Astra’s platform uses a unique combination of technology and human experts, the Decentralized Legal Network (DLN), to perform highly effective KYC and vetting processes for user verification and claiming authentication. This process means it’s possible to eliminate bots and fake users which clog the system. It also provides anti-money laundering processes through an anti-fraud system with accountability and recourse if any suspicious activity occurs.
Apart from these identity verification methods, Astra is a dispute resolution platform with technology that optimally and effectively solves disputes on-chain. It has legal jurisdiction and helps from major accredited law firms for resolution. Lastly, it includes a reporting system based on analytics and process feedback and always aims to improve procedures.
Astra’s platform is equipped with all assets needed to make web3 safe and decentralized and preserve anonymity. It’s rare to find a legal network as advanced and thorough as the one built by Astra, and that’s precisely why compliance is much needed. It’s a niche less explored but paramount for the futures of DeFi and Web3.
Astra Protocol is a leading provider of Web3 compliance and works relentlessly to prioritize user security.
A Decentralized Compliance Layer for the Web3 Economy and Delivering the Compliant Blockchain for the future.