As I’m building towards a funnel framework designed to onboard participants into NoM, I keep reminding myself that the user experience is what’ll enable that Global Adoption.
Let’s imagine a funnel experience where the user is offered to swap from DOGE to ZNN with a single click. No need to go to THORSwap, then bridge the wZNN.ETH to ZNN as a separate process. Everything done as one function, without KYC.
The design would have to take into account a semi-regulated route, using Special Economic Zones (SEZ) for the party designing, implementing and hosting such experience. Examples of such SEZ’s: Próspera, CDEZ (USA-based). In the case of Próspera you can negotiate the terms directly with the regulator i.e. KYC-less swaps in-and-out of ZNN. They likely would require some transaction screening system to be implemented (screening wallet addresses against sanctions list) using tools like Merkle Science or Chainalysis. If something hits a blacklist, it would need to be banned/reported. There’s likely a best-practice framework out there.
Lawyer and expert in AML/CFT & Sanctions Compliance and Regulations for the crypto space.
He holds several international certifications, publications and participations as speaker in the matter. He’s advised international companies and crypto projects ensure they’re not engaging in operations outside their risk appetite.
While I was contributing to THORChain, I had done an extensive amount of sanctions compliance research alongside @LegalZNN for a THORChain interface project we wanted to launch (but eventually let go).
Anyone in the community is welcome to collaborate with him for their projects.
The opportunity for such project may exists today thanks to the various tools available (WalletConnect integration, THORSwap SwapKit, Multi-Chain Bridge). Once we get some metrics from funnels, we’ll be able to evaluate whether a simplified workflow could improve conversions. Building the Killer Funnel is very important to onboard many segments of the market.
The user is asked to install syrius desktop as one of the starting steps of the funnel. The idea is to minimize the amount of steps, and I think that given we have the tools we should be looking ahead to streamline experiences as much as possible.
Yeah the variation testing is typically used to test in-page element changes. In this case it’s a totally different experience, so we’d probably be looking at drop off / abandonment rates. We can assume that an embedded all-in-one experience would probably perform much better.
Interfaces (when it comes to DEXes) have responsibility to abide to AML/KYC regulations of their jurisdiction. The regulators say: well we want to make sure that no sanctioned country individual uses your swap interface for illicit activities. You need to screen the users and block any coming from XYZ country, and for other countries you should be monitoring the addresses transacting through your interface.
Every jurisdiction is different, there is no rule of thumb. Crypto-friendly SEZ are starting to appear.
Anyone can easily embed such a widget into their website with a few lines of code and allow users to do swaps.
Some time ago I made an inquiry to the regulator about using third party swap widgets like this and they basically said that I’m not under any legal obligations since I’m not the one forming a customer relationship with the user, the widget provider is.
But what is the difference between a third party widget and a third party SDK in this context?
Hello, vilkris. Thank you very much for your question.
It depends on the regulator. Most regulators are taking a conservative approach to this, to the point that VASPs will eventually have to comply with tighter restrictions than Traditional Finance institutions. Due to this, VASPs are no longer in a “regulatory grey area” or an “unregulated space” as we were a couple of years ago. The exception would be the Special Economic Zones (SEZ) regulators, who are open to discussing regulations directly with the projects.
There are still places with little regulation, and that is true. However, as we aim for a global audience, we must either: comply with the highest standard so we don’t get in trouble or get used to banning and restricting access to an evergrowing amount of jurisdictions to the point that the projects stop being global. I prefer the first scenario.
Jurisdictions aim to implement FATF’s Guidance on VASP, which is the most important document for forecasting what will be regulatory landscape look like. Points 67 to 70 of the guidance would be key here.
As a rule of thumb, all customer-facing businesses must, eventually, comply with KYC/KYB and Transaction Monitoring, and this requirement extends to traditional technology providers that influence customers’ funds and their safety, such as Wallet Custody Service Providers. But going back to your specific question, when you embed a widget, you’re controlling the range of options the customer has for their swaps/operations, so it could fall within the case of Point 67:
A DeFi application (i.e. the software program) is not a VASP under the FATF
standards, as the Standards do not apply to underlying software or technology (see
paragraph 82 below). However, creators, owners and operators or some other
persons who maintain control or sufficient influence in the DeFi arrangements, even
if those arrangements seem decentralized, may fall under the FATF definition of a
VASP where they are providing or actively facilitating VASP services. This is the
case, even if other parties play a role in the service or portions of the process are
automated. Owners/operators can often be distinguished by their relationship to
the activities being undertaken. For example, there may be control or sufficient
influence over assets or service’scts of the service’s protocol, and the existence of
an ongoing business relationship between themselves and users, even if this is
exercised through a smart contract or in some cases voting protocols.
For code/API/SDK, the customer-facing person or entity would be responsible for the functioning and operation of the actual application. A rule of thumb would be that there’s always somebody who has to comply with regulatory requirements.
Let me know if this was helpful or if there’s any other point you’d like me to go more in-depth.
I have a question for you @LegalZNN: Off the top of your head without going too deep into research, how do these guidelines apply for applications like peer-to-peer (p2p) swaps? It’s an initiative one of the HyperCore teams is working on.
Thank you for the detailed response. Very insightful.
Does this mean that websites such as Etherscan.io would have to comply with these regulatory requirements, since you can use their website to interact with smart contracts to trade assets?
Isn’t this a very ambiguous statement? How is an “ongoing business relationship” defined for example?
If jurisdictions aim to implement these FATF guidelines, aren’t SEZs in risk of being determined to have “weak AML/CFT frameworks”, as stated in paragraph 107, and thus run the risk of being cut off from VASPs in countries with strong regulations?
In addition to P2P transactions, the FATF has identified other potential risks which
may require further action, including; VASPs located in jurisdictions with weak or
non-existent AML/CFT frameworks (which have not properly implemented
AML/CFT preventive measures) and VAs with decentralised governance structures
(which may not include an intermediary that could apply AML/CFT measures).
These risks may require countries or VASPs to identify VASP- or country-specific
risks and implement specific safeguards for transactions that have a nexus to VASPs
and countries lacking in regulation, supervision, or appropriate controls based on
these risks. These risks are particularly heightened if there is mass-adoption.
Vilkris is simply asking follow-up questions to another respondent who is being generous with their time and prior experience so we can learn more about how they view the situation. There’s nothing implied about reliance on new insights surfaced here in a civil manner.
Fortunately NoM seems to already account for your weight in some of these topics.
I’m being very civil. I don’t care if people spend time giving what could be misleading advices: we cannot seek more views at the moment and Zenon is well known for the cultish behaviors of its community. Distribution of trust is better than what you and mehow desperately try to enforce. As for my pillars, they don’t share rewards with people like you and will never do. I however feel like this is off topic and you’re just lost here, seeking for advices you’ll end up following without being able to put them in perspective. Fortunately you don’t have any voting rights at all on the NoM: no matter of the weight, I do have a voice, remember that.
Zenon has wrongly branded itself as a Bitcoin ethos driven project. Let’s see how it plays in regard to regulators following Gensler guidelines.