DeFi Compliance Oracles

Transcript

hi um so hi hi so i'm here to talk to you about um a new thing called d5 compliance oracles so what is a d5 compliance oracle so a compliance oracle lets users define on-chain compliance policies so what's the problem here why do we why do we even care about this so the real issue is that d5 is decentralized in on-chain and that smart contracts are immutable and irrevocable however law and regulation is centralized and off chain and it's fluid and interpretation to what is open to interpretation by uh regulators now the thing is also the current solutions that are existing in the market are fairly retrospective ie a lot of them say that when you've traded with

a dodgy counterparty then you get a analysis after the trade that the clean wallet has then traded away with saying oligarch or someone on a sanctions list and you're in a lot of trouble so this gives a lot of different pain points right the first one is basically institutional participation and this is actually one of the main reasons institutions are not in d5 because it's extremely difficult for them to manage their compliance risk secondly we have the use of resistance i mean who liked it when binance decided that they were going to start scanning your passport to get onto binary so it's actually i hate it it's really annoying um this this inconvenience has a significant price attached to it and you need to address that the third thing is that the the protocols are in a bit of

an issue because they're stuck in the middle of all of this now protocols have this um horrible task of trying to balance the regulatory demands with what their users want and um it's a rapidly changing ecosystem so it's extremely difficult for them to adapt especially with the nature of smart contracts being irrevocable and immutable upgradable contracts to the side right um in terms of technical difficulties how does this how does this actually present itself as a developer it makes it really really actually quite difficult because on the user privacy side we have all of the bam off of zero knowledge you're trying having to map things like dids to user wallets and central agencies can demand access to certain information if you if you've

not uh properly ring fence that information and this this is extremely complex as a as an engineering task the second thing is that is is set theory is um the way set three works is that basically oh sorry the way the way uh compliance works is effectively each user has a set of uh compliance risks that they're willing to take on and effectively this plots itself on a venn diagram where two traders if they're going to intersect if they're good if they're able to trade these two circles would be an intersection on this on the on a venn diagram now for that reason uh compliance is is especially mapped out by set theory and a lot of people don't realize that it's effectively it's a risk that

traders are individually willing to take there are certain traders that are willing to take a lot more risk on in terms of compliance than other traders so there's not a one-stop shop fits all if that makes sense and in terms of the back-end infrastructure the fact that a lot of these verifier verifiers of information um want to be paid in u.s dollars but this is actually like one of the most significant issues on the back end technical stuff is that because they don't want to receive tokens very few people want to receive tokens they want to receive hot cold hard us dollars because it's not their business model they're not interested in crypto they're not interested in default other than just making cash out of it so you've got to somehow get them the money off defy and benefit them for the service they're providing

now that's actually that's obviously an engineering problem in itself and there's hack risks associated with that um and then there's also the fact that if you're if you're mapping if you create any indirect mapping between user wallets and the their identity then you're exposing it to potential again like i mentioned before uh agency action the adoption challenge is user motivations like we said users aren't going to do this unless they make more money or they're forced and i don't think they're going to be forced anytime soon protocols again basically the same reason unless they're forced or they make money they're not going to adopt anything like this and also you have the issue of fragmented liquidity which is a significant issue for a protocol if they're breaking up their liquidity into multiple different pools and then you've also got the idea of

like the trad fee participants um they're basically the the only participants with the problem at the moment is that they're the only ones that actually physically can't trade d5 because of these these kind of like compliance issues all of us in the room frankly probably have a d5 wallet we're all trading on like binance and other platforms and this is not an issue to us as individuals at the moment but the reason is is why care i think people are going to be forced increasingly regulation has been heating up dramatically in the last couple of years the biggest thing is probably block fires 500 million dollars and there's a lot of in green you see a lot of uh big traditional finance shops moving into d5 or looking at how they can trade in defy specifically and for the investors and for users like

ourselves this is a huge potential avenue of um frankly extra extra gain for the d5 community because if we can engage these traditional finance institutions we can see d5 hitting basically like a 1.5 trillion market um and in terms of the revenue potential is huge um if people can crack this there's it's the revenue is directly proportional to daily active wallets which means that you basically you're effectively a tail hedge because activity increases in times of realized volatility that makes when things go melt down and when terra luna happens you see the activity in the on the chain goes up which means because the activity goes up people need to verify themselves to be able to

participate in the basically to make sure that they can sit within the compliance ring that they've asserted that they can sit within because they need to assert that regularly that means when they the activity goes up on the chain they need to do this more regularly and then hence the fee pull increases which is actually really attractive if you're like a hedge fund or you're a vc because you basically make more money on stuff like this than when you uh lose money on all the rest of your portfolio um and this is the most interesting bit i actually found for doing this presentation is that despite all of us have got mashed in our d5 portfolios for probably the last six months the activity in blockchain has actually increased and in particular if you look at you remove binance chain which i think is a bit more centralized and you

look at the blue it's actually gone up and particularly it went up during terra luna as well so what we actually see is although say money's moving out of the system in terms of dollar value there's more users there's actually way more activity on the blockchain i think this alone when i saw this i actually put a lot more money into d5 as soon as i saw that chart um and yeah that's it that's that's all i've got to talk about and um i welcome anybody any questions of like how how they feel this should be addressed any question or reaction yeah yeah

hey hey um can you go to maybe more detail on kind of what your proposed solution is for this problem and what it looks like yeah sure so basically what you've got to do is you have to address that set theory issue so you have to address the sec the the ability to give different types of compliance risk to different users and then be able to intersect their different policies with each other and to be able to do that you need to assert that a different person can sit in each particular set therefore you need to create an oracle between the off chain and the on chain so effectively you need a d5 compliance oracle which is the point of the talk and you need to do something that looks like set theory on solidity otherwise there's no abstract way in which you can

you can separate users because that is the definition of set theory as a separation of individual discrete elements thanks any other reaction no thanks for your time it's a pleasure talking to you guys thank you [Applause] you