Liquidity Pools and the Risk Score
Money laundering has been one of the main issues affecting the global economy for many decades. The rapid development of DeFi infrastructure that has not been accompanied by the introduction of effective security solutions has created a favourable environment for malicious actors. And in this situation, honest users are left almost without any adequate protection, so that their reputation and image are under the threat of being heavily damaged. Hacken Foundation cannot ignore this situation. That is why we have decided to launch PureFi, the solution aimed at making DeFi free of money laundering.
The PureFi protocol, a project developed by AML.Bot and launched within the Hacken Foundation, allows DeFi market participants to comply with international AML and KYC procedures without giving away sensitive information or even an identity.
PureFi checks the crypto wallets and transactions, assessing the risk score and issuing the Verified Credentials (VC) to the approved ones. What about possible applications and use cases of the PureFi protocol?
Decentralized Exchanges (DEXs) unlike the Centralized ones (CEXs), do not keep an order book of the executed trades and, instead, all crypto assets available for trading are combined in the liquidity pools.
There is a high risk that “dirty” crypto coins might mix with the clean ones, putting the DEX founders at risk of penalties imposed by the financial regulators, regardless of whether the DEX is regulated or not. Besides, the absence of the AML and KYC scares off serious institutional and private investors.
In order to protect themselves, DEXs need to be sure that the illegal funds are not coming to their liquidity pools. Moreover, the holders (the liquidity suppliers) also have to shield themselves from “dirty” money. When the authorities investigate the money laundering trail, they will put questions to all parties involved in the money flow. So, traders are strongly interested in showing proof that they have no connections to “dirty” money.
However, the DeFi market participants prefer to stay anonymous and not share their identity or any other information. So, how can the liquidity pool operators and their users check the information without actually revealing it?
PureFi protocol is capable of checking each transaction in virtual currencies and assigning the money laundering (ML) risk score.
This way the liquidity pools can request the ML score before accepting funds from the holder. When the money laundering (ML) score is high, the funds are reversed back to the holder. On the contrary, when the ML score is low, the smart contract is executed and tokens are added to the liquidity pool.
If liquidity pools are regulated, they will require the full AML and KYC verification that they are obliged to report back to the regulators. In this case, the liquidity pool becomes a Verifier and gets selective disclosure access to the Verifiable Credentials (VC) certificate of a specific liquidity supplier. The liquidity pool gets the information required under a zero-knowledge circumstance. As a result, the liquidity pool either accepts or denies the liquidity provider.
The Verified Credentials (VC) whitelist allows the holder to choose and pre-approve addresses to which the VC data can be supplied and fully disclosed. The inclusion of the address to the whitelist enables requested VC data disclosure to the particular liquidity pool or any other dApps for a full AML/KYC verification.
Alternatively, the liquidity pool operator can request the holder to add it to the whitelist in case the holder was trying to add liquidity to the pool that hadn’t been whitelisted before.
If the holder does not provide the ML score, the Verifier is able to run the PureFi protocol in order to prove the “purity” of the funds. Based on the determined ML score, the pool operator can accept or reject the tokens.
The anonymous trading on the decentralized exchanges will stop being considered the “Wild West”. Even an accusation of involvement in money laundering can not only ruin the reputation of honest businesses but also cause serious legal consequences. PureFi protocol is a revolutionary tool turning KYC into Self Sovereign Identity and helping exchanges and users to protect themselves while making the most out of decentralized trading.
Hacken Foundation prioritizes promoting the development of projects that solve fundamental issues affecting honest users. We are the main enemy of cybercriminals in the industry and we are focused on making DeFi a safe place. PureFi is likely to become a great DeFi security project.
About Hacken Foundation
Hacken Foundation gives a boost to innovative cybersecurity solutions by empowering the Hacken Ecosystem through HAI Tokenomics. All projects pass a strict pre-approval procedure before entering Hacken Foundation so that potential investors may be absolutely confident of the projects’ transparency and protection of their assets. Hacken Foundation has successfully launched 4 projects including HAPI, disBalancer, ArtWallet, and PureFi. It is just the beginning of our long journey. We keep on looking for solutions that will make difference.
View more info about PureFi at:
Telegram Group: https://t.me/purefigroup
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Hacken Website: https://hacken.io/
Hacken Foundation Website: https://hackenfoundation.com/