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Six steps on how ARARACLE AML works for Defi as part of an atomic treatment
It is not a secret that the DEFI policies (decentralized financing) and AML (anti -money laundering) policies are difficult to align.
Organizers and industrial players call for the importance of the organization, but we face the blatant reality It is almost impossible to implement effective supervision in this field.
Meanwhile, the stolen money is still Wash it through Defi tools.
How can we balance decentralization with legal obligations? Usles use becomes an effective solution.
Why the traditional AML failed in Defi Security and restrictions on smart contracts
Aml policies are struggled to adapt to the Defi ecological system due to great restrictions.
Smart contracts cannot make decisions that require external information, such as passing the AML checks.
These contracts are limited to the data available on the Blockchain you are working on. They cannot directly access data from Blockchains or other external sources, such as web sites or application programming facades.
This is because smart contracts are implemented by the Blockchain node, which does not contain a built -in connection on the Internet and can only connect to their Blockchain.
This design is intended to maintain security and decentralization in Blockchain.
Blockchain consensus requires that all the data used in the Blockchain transaction be recorded before the transaction is carried out.
This ensures that the network operates in an unreliable and safe way, with all contracts agreed on the same information.
If smart contracts can connect to the Internet, they will provide security and operational risks.
External data Like from web sites or application programming facades OES does not follow Blockchain rules, which makes it possible to feed the processed or wrong data in the system.
Oracles brings additional information to Defi applications
This is where Defi Oracles plays a major role. Oracles allows Defi applications to bring external data to Blockchain, allowing Blockchain transactions to achieve consensus with this information outside the chain.
This information can include data from the AML platform, such as KYC (Know your customer)/KYB
The graph below shows how the Oracle AML works for Defi.
How to comply with Defi Oracle
1. The user interacts with the Defi service
Users deal with the Defi service for joint financial procedures such as deposit, withdrawal, swap, lending or assets.
Before the treatment processing, DEFI should make sure that the transaction is compatible with the AML regulations.
2. Request Defi service to AML Oracle
When the user begins the transaction, the DEFI service requests to check the AML for the user address and its associated data.
Defi service communicates with the AML Oracle Smart contract, as it requires the result of KYC/KYB evaluation, classification of transactions risk or title risk classification.
3. AML external provider monitors the AML Oracle requests
The AML Oracle Smart’s external provider is constantly monitoring the requests from Defi Services.
Once the AML external provider discovers a request, the AML examination begins based on the specific details of the request.
4. Blockchain Foreign Data Data and Data Data
The AML external provider performs an AML test by analyzing both the data on the series and outside the series.
- Data on the series Such as the history of transactions, wallet addresses and other related Blockchain activities
- Data outside the series, including penal lists, surveillance and internet lists or deep web sources that contain information about suspicious addresses
- KYC/KYB data provided by users and is linked to their corresponding Blockchain addresses
5. The AML provider responds
After completing the check, the AML external provider writes the result to Blockchain and provides a signal to this data for the Aml Oracle smart contract.
The result usually includes a pass/failure and link to more detailed data stored by the AML provider for auditing purposes (to provide costly Blockchain space).
6.
Once the Aml examination is available on Blockchain, the Defi service is automatically taken based on the rules of the smart nodes.
- If the user holds an AML test, the Defi service continues with the treatment (deposit, withdrawal, swap, lending, deception, etc.).
- If the AML examination fails or raises concerns, the DEFI service may stop the treatment or freezing user’s money.
All these steps occur as part of an atomic treatment
In Blockchain, atomic treatment means that all steps in the process succeed or none of them.
This ensures that no partial or inconsistent condition is left, ensuring the safety and security of the treatment.
For example, if the user’s address appears in the penal list, the exchange treatment will be automatically canceled according to Blockcha rules Without any need for human intervention.
This eliminates the risk of regime or human error failure from the compliance employee.
To summarize
Defi systems have the ability to integrate effective AML solutions. This goal is likely to require time and effort.
To date, Oracles can be considered a global technical solution to the AML embodiment in Defi.
Lex Fisun is CEO and co -founder of Ledger GlobalIt is a Swiss company that provides the Aml Cryptocurrency risk analysis, the Blockchain forensic and electronic crime investigation tools. Since 2015, Lex worked in Fintech and AI and combating fraud, which prompted him to establish the World Professor’s book in 2019 in response to an increase in the encryption lists.
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