ComplyDeFi: The Compliance SDK For DeFi Protocols

Who is ComplyDeFi for? 

DeFi protocols, Web3 applications and Decentralized Autonomous Organizations (DAOs) may use ComplyDeFi to “filter” their participants and accept/exclude certain types of users in order to apply compliance rules or launch new segmented business models.

Why is ComplyDeFi needed? 

By linking Web3 applications with a self-sovereign identity system, ComplyDeFi opens an infinite number of use cases. Perhaps the biggest one would be to open DeFi to institutional investors, who require some compliance guarantees about the DeFi project owner and the other participants in the protocol.

Aave Arc, the institutional version of the well-known Automated Market Maker (AMM) DeFi protocol, is starting the movement to permissioned DeFi. Increasingly, DeFi protocols will choose to launch specific versions excluding retail investors to reach bigger investors, or at least will exclude underage or participants from trade embargoed countries, to make their ecosystem safer and targeted.

In addition, as DAOs grow, these organizations need to validate who can join them, participate in decision-making and take active roles. As a first step, it could be helpful to prove that the governance token holder is a human and not a robot.

How does ComplyDeFi work? 

It provides a simple modifier, acting as a compliance layer, to link the decentralized identity system ONCHAINID to DeFi protocols:

• Compliance & segmentation: The DeFi protocol sets up criteria conditions for participants; the ComplyDeFi SDK will verify eligibility via users’ ONCHAINIDs.
• Anonymous credentials: ONCHAINID owners share verifiable credentials to the DeFi protocol for eligibility check and the code returns yes or no. No actual information is shared, so users remain anonymous.

Here is an illustration explaining the user journey in permissioned DeFi protocols using ComplyDeFi:

As a result, while participants don’t know who they’re dealing with in detail, they can ensure that other participants are verified by trusted parties designated by the DeFi protocol (e.g. KYC providers, auditors, banks, etc.), opening the door for protocol owners to roll out multiple versions of protocols based on different business needs.