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Today I’d like to tell you a story that I have recently stumbled upon when sharing some food at the dinner table with my friends. One of them, Dereck, was outraged that night. When I asked him what put him through such negative emotions, he told us about the $10 000 inheritance he received from the uncle that passed away a few months earlier. He couldn’t think of any better way to manage this fund but to buy crypto and try his luck.
A couple of how-to articles, several guiding YouTube videos, and boom! He managed to register on one centralized exchange, passed the KYC verification, put the money in, confirmed the origin of funds, bought Ethereum, and decided to explore DeFi. Many would argue that it was one of the quite successful cases since he could double the amount of investment with a bare minimum of knowledge about DeFi, but here’s the trick. After celebrating his unexpected success, he tried to exchange back crypto to fiat and failed. His transaction was suddenly blocked due to a high money laundering (ML) risk score.
He started looking for help from specialists to give him a piece of advice on how to withdraw the money he earned simply through farming without any criminal manipulations or being involved in ML. How could this even happen? After all, the money was initially clean, and what is the process behind which the pure money turns dirty. The answer is simple. For most exchanges, the DeFi market is marked high risk, and a large amount of money ($20 000, in this case) always attracts attention and arouses suspicion.
Of course, none of it would have happened if all exchanges had outsourced the compliance issue to the experts. Let’s take PureFi as an example. PureFi aims to provide a full-cycle solution for crypto asset analytics and AML/KYC procedures on the DeFi market. PureFi within a set of smart contracts will connect KYC/AML providers with DeFi users and Dexs/Defi projects to provide crypto asset analytics and protect honest DeFi market players from “dirty money” risks. For example, the liquidity pool user will be able to avoid the risk of getting an illegal money trail using the Verifiable Credentials certificate with his full-fledged AML/KYC data.
The more you know, Dereck. Better luck with your research next time.