Institutional Tokenization 3.0: Break Silos
October 2024 Institutional Tokenization 3.0: Break Silos Since Tokeny started building tokenization solutions in 2017, we have seen financial institutions exploring tokenization of assets in…
Guarantee Asset Ownership with Blockchain Passports
In the DeFi world, digital assets are stored in blockchain wallets. Obviously, wallets are not identities, they are anonymous addresses and contain no data on the owner’s identity. A private key is the ‘password’ of the wallet, whoever knows it can access the wallet. It cannot be changed, but it can be stolen. In other words, a wallet is more like a browser for blockchain, where you can see what is inside, but you cannot be sure that you are the only one that has access to your assets. This causes a number of issues:
- Lack of ownership guarantee: If the private key of the wallet is accessible by another user, then who owns the assets?
- Lack of compliance: For token issuers or DeFi protocols, it is impossible to comply with regulations if the owner of the digital asset is unidentifiable and eligibility criteria cannot be enforced.
So, what is the solution? Digital identities. Just as our assets are secured by tying our identity to them in the real world, digital identities can serve as blockchain passports in the DeFi world to guarantee the ownership of digital assets.
Here is how it works:
- Link digital identity to tokens: Use a token standard that codes ownership of tokens with a digital identity into the token, such as ERC3643, the official permissioned token standard. With this standard, token recovery is even possible due to the use of ONCHAINID, a decentralized digital identity system.
- A functional blockchain passport: Once the tokens are issued, they will be allocated to a wallet associated with the digital identity. Furthermore, digital identity functions go far beyond this, and can allow you to recover/transfer tokens, add/delete wallets (e.g. Metamask, Ledger), etc.
More interestingly, when personal data (e.g. country of residence, age…) is verified by trusted parties (e.g. government, big four, KYC providers…), the proof of the verification is stored onchain in the digital identity, making these proofs reusable. For instance, identity owners can grant access to their proof of age to a DeFi protocol that only accepts users above the age of 18.
Without revealing their personal information, the DeFi protocol can determine if the identity holders are over 18 years old via the verified proof. Digital identity is thus like a privacy-protected blockchain passport, making it easier, safer and faster to explore DeFi.
