Industry leaders call for KYC measures to tackle “biggest issue” in DeFi

DeFi execs at the World of Web3 (WOW) Summit in Hong Kong argued that implementing “Know Your Customer” (KYC) measures could help tackle the “biggest issue” in decentralized finance (DeFi): hackers laundering millions of stolen funds into “clean money.” During a panel session on March 29 titled “Blockchain Security to Smart Compliance: AML & KYC Solutions in DeFi,” industry leaders highlighted the efficacy of KYC in DeFi as a solution to tackle Anti-Money Laundering (AML) issues.

Dyma Budorin, CEO of smart contract auditing firm Hacken, warned that hackers have access to various tools, allowing them to easily launder stolen funds from DeFi platforms. He described this as the “biggest issue” in the industry and noted that it makes tracking the origin of funds difficult.

Nevertheless, he expressed optimism regarding KYC measures, stating: “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.”

Victor Yim, Head of Fintech at Hong Kong’s incubator for entrepreneurship, Cyberport, argued that implementing KYC measures alone won’t be enough to tackle the AML issues in DeFi. Despite traditional finance having KYC processes in place, Yim acknowledged that money laundering still occurs on a daily basis.

Yim expressed his belief that such measures will bring about a “better tomorrow” for DeFi, and that the sustained effort of regulators, policymakers, bureaus, and other stakeholders is required to ensure its success. He further proposed a solution of “anonymous traceable”— where individuals remain anonymous until law enforcement requires them to be identified—as a way of protecting honest people while still apprehending wrongdoers.

Alexander Scheer, the founder of zkMe, stressed the importance of employing different mechanisms for different solutions; for example, crypto mixers should be handled differently to DeFi front-ends and on-and off-ramps. He also urged the DeFi industry to “front run” regulations before they are imposed by regulators.