CipherTrace, a blockchain analytics and forensic firm, has revealed that most crypto firms’ practice weak Know Your Customer (KYC) exercises. CipherTrace carried out a research to reach this conclusion.
CipherTrace research revealed that 56 percent of crypto firms lack healthy KYC practices which makes them vulnerable and used to launder money. The research analyzed over 800 firms, including over-the-counter trading firms, centralized exchanges, decentralized exchanges, and other categories of crypto firm.
Decentralized exchanges perform weakest KYC checks
After CiphetTrace research, Dave Jevans, the firm’s chief executive officer, said that a larger chunk of crypto firms with weak KYC routines are decentralized exchanges.
Jevans exposed that if decentralized exchanges were not analyzed, the numbers would be lower. 21 DEXs were analyzed in the CipherTrace research. Over 16 of them had weak verification process. Some do not have any KYC checks exercise.
However, Decentralized crypto firms have enjoyed much success in the crypto space in the last one year. Reportedly, their trading volumes hiked by close to 30 percent compared to previous years.
DEXs enable users to perform transactions without the need of a third party which makes users’ evade regulations.
CipherTrace research findings come in the wake of Kucoin exchange hack which happened recently.
$281 million worth of crypto was stolen from KuCoin. Around $7.9 million of the stolen fund was sold off via Uniswap.
The hacker was also able to move $5 million through several other Decentralized exchanges.
Trading on Uniswap has hiked recently. It recorded an all high in the last three months of $953.59 million last month. The platforms guarantee more anonymity compared to other DEX platform.
Uniswap records a daily trading volume worth $4 million CipherTrace revealed.
CipherTrace research: Why crypto firms should improve their KYC processes
DEXs could be an instrument for money laundering Juan Llanos, founder of crypto consultancy firm, Juan Llanos Advisors said.
According to him, transactions should not be anonymous, however, Decentralized exchanges are not regulated therefore, they open doors for fraud and other manipulations.
Also, weak KYC exercises are against international trading guidelines. Financial Action Tax force recently updated it’s rule to include crypto businesses directing that finance platforms collect and share customers’ information before completing transactions.
CipherTrace CEO, however, said getting crypto firms to comply with improved KYC checks and making it possible for transactions to be anonymous is necessary.
Before crypto firms can improve KYC exercises, Names, address proofs, audio/video interviews have to be done before transactions are completed. However, the practice currently is just email, social media handles, or phone numbers to complete transactions.
This makes the crypto industry subject to increasing and stricter regulations.