PWN
@pwndao
KYC is a regulatory headache, but what if we could mitigate risks without exposing personal data? Let's explore how selective disclosure & on-chain reputation can help. Know Your Peer: A privacy-first approach to self-regulation in DeFi. A thread 🧵
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PWN
@pwndao
KYC isn’t about businesses wanting your ID - it’s about regulators forcing them to check it. DeFi challenges this model: If there’s no intermediary, whose responsibility is compliance? In a truly decentralized system, it’s not the platform but the transacting parties who bear responsibility.
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PWN
@pwndao
If you’re a business, it’s your books at stake. If you’re an individual, you probably don’t want to trade with sanctioned entities or bad actors. So how do we self-regulate without giving up privacy?
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PWN
@pwndao
👹 The ugly solutions: - Blacklists: Ineffective since bad actors can just create new addresses. - Whitelists: Limits participation, raising the question - is this even DeFi anymore? Neither is ideal.
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PWN
@pwndao
The better approach: Selective disclosure Instead of exposing full identity data, we can validate just what’s needed: ✅ Age verification ✅ Residency check (e.g., not from a sanctioned country) ✅ Proof of uniqueness (not a bot)
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PWN
@pwndao
Luckily today, there are means to achieve that, such as: @zkpassport ZK proofs for nationality & ID ownership @privadoid Privacy-focused ID verification @worldcoin: Ensuring you’re interacting with a real person Regulators haven’t fully accepted these yet, but standards start somewhere.
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PWN
@pwndao
Transparency in blockchains is both a curse and an opportunity. Instead of leaking all financial history, we can use on-chain reputation scores to gauge trustworthiness: - @talent - Onchainscore (from the @base ecosystem) - @legiondotcc scoring - TheBlockBureau
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PWN
@pwndao
With on-chain reputation, we can: - Filter trustworthy peers - Adjust risk-based lending rates - Avoid transacting with entities that don’t align with our values Self-regulation, not surveillance.
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