During the World of Web3 (WOW) Summit in Hong Kong, top players in the Decentralized Finance (DeFi) sector argued that the incorporation of “Know Your Customer” (KYC) measures would be instrumental in addressing the money laundering issues affecting the DeFi industry.
According to them, hackers now use crypto to launder millions of dollars worth of stolen funds. As a result, they believed that introducing KYC would solve the issue of money laundering.
CEO Complain About Tools Available To Hackers
Budorin, the CEO of Hacken – a smart contract auditing company – cautioned about the abundance of tools conveniently accessible to hackers for “laundering” DeFi platforms’ stolen funds. According to him, this constitutes the most pressing problem for the industry.
The CEO elaborated on how hackers can quickly make off with millions of dollars and subsequently “launder” the funds by transferring them across multiple wallets, thus obscuring the source of the funds and rendering them “clean” once again.
This, in turn, poses a significant challenge in tracking the movement of the funds. Budorin added:
“The implementation of KYC is centered around the principles of transparency and accountability. The vast majority of individuals, around 99%, have nothing to hide, which is why I do not consider it to be a controversial matter.
Also read:On the other hand, Victor Yim, who leads fintech initiatives at Cyberport – a Hong Kong-based entrepreneurship incubator – opined that while KYC is necessary, it may not be a comprehensive solution to all AML issues.
Yim cited examples from the traditional financial sector, where KYC measures are prevalent, and pointed out that incidents of money laundering continue to occur regularly.
The Need For Anonymous Traceability
Nevertheless, Yim expressed confidence that adopting KYC measures will pave the way for a “better tomorrow.” However, he emphasized that achieving this goal would necessitate a joint effort from various stakeholders, such as regulators, policymakers, and other relevant players.
Additionally, Yim highlighted the notion of “anonymous traceability” as an illustration of the balance that can be struck between maintaining anonymity and ensuring regulatory compliance. In this approach, individuals can remain anonymous unless legally compelled to reveal their identities by law enforcement agencies.
Meanwhile, Alexander Scheer, the zkMe founder, says using distinct mechanisms for various solutions is crucial. Specific solutions, such as crypto mixers, require a completely different approach than DeFi front-ends, on-ramps, and off-ramps. Regarding regulations, Scheer suggested that the DeFi industry should take a proactive approach and be proactive regarding potential rules before regulators enforce them.
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