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Global Fintech Series
4d
161
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AML in DeFi: Can Smart Contracts Automate Compliance Without Centralization?
- DeFi's permissionless nature poses challenges for AML compliance, lacking centralized oversight like traditional finance.
- Key AML challenges in DeFi include the absence of KYC requirements, obfuscation techniques, and smart contract vulnerabilities.
- Smart contracts can automate AML compliance in DeFi by integrating on-chain transaction monitoring and decentralized identity verification.
- Risk-based smart contract permissions and blacklist/whitelist integration help in enforcing compliance transparently.
- Automated reporting through smart contracts can generate AML reports and facilitate decentralized regulatory integration.
- Challenges in implementing AML smart contracts include balancing privacy and compliance, resistance from the DeFi community, and governance issues.
- The future of AML automation in DeFi may involve Zero-Knowledge Proofs, decentralized risk-scoring, and smart contract governance models.
- Smart contracts offer a path to automate AML in DeFi while maintaining decentralization, aiming for financial integrity and transparency.
- Widespread adoption of ZKPs, decentralized risk-scoring, and smart contract governance are expected to shape the future of AML compliance in DeFi.
- Implementing AML in DeFi with smart contracts aims to achieve compliance without compromising the core ethos of openness and transparency.
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