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Six steps on the way an aml oracle for defi can operate in the context of an atomic transaction
It is not a secret for anyone that policies DEFI (decentralized funding) and AML (fight against money laundering) are difficult to align.
Regulators and industry players defend the importance of regulations, but we are faced with the austere reality T is almost impossible to implement effective monitoring in this space.
Meanwhile, stolen funds continue to be bleached via DEFI tools.
How to balance decentralization with legal obligations? The use of oracles becomes an effective solution.
Why the traditional LMA fails in defi Safety and limits of intelligent contracts
Traditional LMA policies are struggling to adapt to the DEFI ecosystem due to significant limitation.
Intelligent contracts cannot make decisions that require external information, such as the success of LMA checks.
These contracts are limited to the data available on the blockchain on which they operate. They cannot directly access data from other blockchains or external sources, such as websites or APIs.
Indeed, intelligent contracts are carried out by blockchain nodes, which have no integrated internet connectivity and can only connect their own blockchain.
This design is intentional to preserve the security and decentralization of blockchain.
The blockchain consensus requires that all the data used in a transaction must be saved on the blockchain before the transaction can be executed.
This guarantees that the network operates in a without confidence and secure way, all the nodes of the same information.
If intelligent contracts could connect to the Internet, they would introduce security and operational risks.
External data like websites or APIs OES does not follow blockchain rules, which allows you to deliver handled or false data in the system.
Oracles provides additional information to DEFI applications
This is where Defi Oracles plays a key role. The oracles allow DEFI applications to provide external data to the blockchain, allowing blockchain transactions to reach a consensus with this out -of -chain information.
This information may include data from an AML platform, such as KYC (Know Your Customer) / KYB (know your business), surveillance lists, black lists, sanctions lists, transactions monitoring and Transactions screening / filtering.
The diagram below shows how the Oracle AML works for Defi.
How does the compliance oracle work
1. The user interacts with the DEFI service
Users engage with the DEFI service to carry out current financial actions such as the deposit, the withdrawal, the exchange, the loan or the implementation of the assets.
Before processing the transaction, the DEFI service must ensure that the transaction complies with AML regulations.
2. Request for a service DEFI at the Oracle AML
When a user initiates a transaction, the DEFI service requests an AML control for the user address and the associated data.
The DEFI service communicates with the intelligent AML Oracle contract, requesting the result of the KYC / KYB assessment and a risk rating of transaction or a risk rating.
3. The external LMA supplier monitors AML Oracle requests
The external LMA supplier permanently monitors the intelligent AML Oracle contract for incoming requests for the DEFI services.
Once the external AML supplier detects a request, it begins the AML check according to the specific details provided in the request.
4. Screens of the Blockchain External LMA Supplier and Outside Chain Data
The external AML supplier performs AML control by analyzing the data on chain and out of chain.
- Chain data Like transactions history, portfolio addresses and other relevant blockchain activities
- Outside chain data, including sanctions lists, surveillance lists and internet or deep web sources that contain information on suspicious addresses
- KYC / KYB data provided by users and linked to their corresponding blockchain addresses
5. The AML supplier responds
After completing the check, the external AML supplier writes the result at La Blockchain and provides a reference to this data for the Smart AML Oracle contract.
The result generally includes a success / failure status and a link to more detailed data stored by the AML supplier for audit purposes (to save on the cost of costly blockchain).
6. DEFI Service acts based on the result of AML control
Once the AML check result is available on the blockchain, the DEFI service automatically takes measures according to its intelligent contract rules.
- If the user succeeds in the AML check, the DEFI service proceeds to the transaction (deposit, withdrawal, exchange, loan, stimulation, etc.).
- If the AML check fails or raises concerns, the DEFI service can stop the transaction or freeze user funds.
All these steps occur within the framework of an atomic transaction
In Blockchain, an atomic transaction means that all the stages of the process succeed or that none of them does.
This ensures that no partial or inconsistent state remains, guaranteeing the integrity and security of the transaction.
For example, if the address of a user appears on a list of sanctions, the exchange transaction would be automatically canceled by the rules of the blockchain Without needing human intervention.
This eliminates the risk of system failure or human error from a compliance agent.
To summarize
DEFI systems have the potential to integrate effective AML solutions. Reaching this objective will probably require time and efforts.
Until now, oracles can be considered as a universal technical solution for the management method of the LAM in DEFI.
Lex Fisun is CEO and co-founder of Global Ledger, a Swiss company providing a risk analysis of cryptocurrency LMA, blockchain criminalic and cybercrime tools. Since 2015, Lex has worked in Fintech, AI and Anti-Fraude technological companies, which led him to the Global Ledger Foundation in 2019 in response to an increased examination of cryptographic regulations.
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