Traditional finance observes “money laundering happening every day” despite rigorous KYC measures, according to DeFi industry execs.
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DeFi execs at the World of Web3 (WOW) Summit in Hong Kong argued that implementing “Know Your Customer” (KYC) measures will tackle the “biggest issue” in decentralized finance (DeFi), which is hackers laundering millions of stolen funds into “clean money.”
During a panel session at the summit on March 29, titled “Blockchain Security to Smart Compliance: AML & KYC Solutions in DeFi,” industry leaders endorsed KYC in DeFi as a solution to tackle Anti-Money Laundering (AML) issues.
Dyma Budorin, CEO of smart contract auditing firm Hacken, warned of the prevalence of tools readily available to hackers to “launder the money” stolen from DeFi platforms, which he described as the “biggest issue” in the industry.
He explained that hackers can easily steal millions of dollars and launder the funds into various wallets “to make clean money again,” making it difficult to track the source of the funds.
“KYC is about transparency and accountability. I don’t think it’s an issue for a majority of people. I’m sure 99% of people don’t have things to hide. I’m happy to see it as part of our world.”
However, Victor Yim, the head of fintech at Hong Kong’s incubator for entrepreneurship, Cyberport, suggested that KYC alone won’t solve all AML problems.
Yim explained that even in traditional finance, where KYC measures are prominent, “there is still money laundering happening every day.”
Blockchain Security to Smart Compliance : #AML & #KYC for #DeFi Path to compliance is : Now is the best time to prove that Defi can be secure and compliant @jessecogo from @Cointelegraph @buda_kyiv @tyyim Alexander Scheer @WOWsummitWorld pic.twitter.com/Lk5mnhMKDS
— Charu (@Charu_Sethi) March 29, 2023
However, he believes KYC measures will make a “better tomorrow” for the DeFi industry, adding that it will require a collective effort, including “regulators, policy, bureau and other players,” to execute successfully.
Related: Binance launches internal investigation following KYC bypass rumors
Yim cited the concept of “anonymous traceable” as an example of a balance between anonymity and compliance, with individuals remaining anonymous unless called upon by law enforcement, adding that it will “protect the good people while still getting the bad people.”
Alexander Scheer, the founder of zkMe, emphasized that different mechanisms should be used for different solutions, as crypto mixers, for example, “need to be handled completely differently” to DeFi front-ends, and on- and off-ramps.
Scheer also touched on regulations, stating that the DeFi industry should proactively take the lead and “front run” regulations before they are imposed by regulators.