Compliance and blockchain are two words you don’t often hear in the same sentence, and when you do, they usually don't have a positive message attached. In 2023, we saw more regulators around the world clamp down on blockchain protocols, pointing to the risk of these networks being used to facilitate money laundering and illicit financial flows.
The U.S. Senate is considering a bipartisan bill that will require Decentralised Finance (DeFi) protocols to impose bank-like controls on their users. This will make the protocols subject to the same Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) requirements as centralised Traditional Finance (TradFi) institutions. If passed, the regulations would pose a significant threat to existing DeFi use cases and the groups that build front-end interfaces for smart contract platforms.
Regulators' direction aside, at Redbelly we believe that integrating compliant infrastructure at a protocol level is crucial for Web3 solutions serving future users. Compliance is an imperative not just for specific use cases, but for Web3 technology’s legitimacy as a whole. It is a critical component of what is ultimately the most important aspect and driver of Web3 adoption: the ability for users to trust these platforms when trading valuable assets.
Day by day, it’s evident that the users looking for these compliant solutions are not only retail users. Rather, appetite is growing from DeFi businesses, emerging markets and institutional investors looking for a compliant way to tokenise Real World Assets (RWAs) on the blockchain.
Redbelly Is Both A Composable And Compliant Solution
Blockchains work independently through their self-executing smart contracts, to execute functions without reliance on third parties. When it comes to financial transactions in this environment, however, the way these networks interact with each other becomes especially important.
Composability is an important mechanism that allows these systems to be flexible and interoperable. Using smart contracts for high-value financial transactions will deliver benefits from automation, efficiency and transparency, and given the common rails used by all smart contracts on the blockchain provide many opportunities for plugging multiple solutions together to create new value. What’s unique to Redbelly, however, is the additional provision of infrastructure to meet compliance requirements at the protocol level. This provides shared rails for real world compliance and enforceability to all use cases deployed on the network. Critically, as part of Redbelly Network, the contracts remain part of a public, open chain that can onboard users and scale across the globe quickly and easily.
As an open, public chain, only Redbelly provides the best of both worlds, because accountability and identity are provided through Verifiable Credentials (VCs). This is combined with Zero-Knowledge Proofs (ZKP), providing an ideal balance of identity and Personal Identifiable Information (PII) protection at the network layer. This kind of accountability is normally only provided by private, closed chains which lack the composability businesses need to build their own compliant solutions.
Redbelly is different to its competitors because it combines this public, open chain composability with the ability for businesses to build the compliance required. This includes the compliance required for each and every asset class or use case at the transaction level.
Redbelly Returns Power Over Governance Back To The User
Composability is vital to the world of DeFi. It gives developers the ability to combine aspects of different protocols and can quickly innovate new financial products, increasing market efficiency and liquidity, while minimising idle assets. A company might want to prohibit premature liquidation or unwanted speculation. Alternatively a company may want to showcase how one particular asset has unique and different attributes in a way that is visible to everyone involved. Smart contracts on the blockchain could function in a way that sets up tokens associated with dividends and features new ways to collateralise assets.
With so many different opportunities and possibilities, how can any blockchain hope to provide cookie-cutter compliance solutions without being reductive and limiting the development of new ideas? In reality, many blockchains can’t. That’s why Redbelly is the only public infrastructure upon which a business can configure its own contracts and ensure they match their underlying legal and compliance rules, in exactly the way that they see fit.
This level of control both at build and over the lifecycle of the contracts mean businesses can retain direct control over their compliance and risk management approach. Businesses retain full governance control at all times, making Redbelly a solution that can work arm in arm with Risk and Compliance teams across industries and sectors. This makes everyone’s lives easier when building new asset-class based solutions in a responsible way.
Only Redbelly Enables Companies To Extend KYC Compliance Into ‘Always-On Identity’
Redbelly Network also accommodates much more than just compliance with Know Your Customer (KYC), AML and CTF requirements. The network provides a way for businesses to use its infrastructure to code and control the way that their compliance is addressed. Simultaneously, Redbelly integrates and maintains current and accurate user information which goes beyond these regulatory standards.
When a business can program KYC compliance and extend its knowledge of the user with critical information, its ability to operate efficiently and protect its assets and customers increases exponentially. This can include integrating licensing criteria, current and active user qualifications, policy adherence criteria, as well as assess fit with jurisdictional requirements and investor classifications.
Moving from only ensuring KYC compliance to this level of information on a user enables an entirely new paradigm. This paradigm is one where a business has the ability to maintain a broad and ‘live’ set of verified credentials on its users over time. This is a monumental shift from the ‘point-in-time’ compliance checks of the Web2 world, where in today’s world billions of dollars are swallowed up in wasted time and effort fighting fraud, finding bad actors and compensating customers.
The establishment of this type of ‘Always-On’ identity service will therefore be a game-changer for Web3. The huge leap forward it brings to compliance, risk management and protections against fraud, and their flow on impacts to operating efficiency, cost reduction and consumer protection cannot be underestimated. Hundreds of billions of dollars of value can be released globally when this type of solution is applied to global asset markets. It’s good for business, good for customers, good for Web3, and good for the world.
Only Redbelly combines the best of the private, closed chains’ accountability and identity benefits with the composability and adaptability of the public, open chains. As the world’s only public purpose-built RWA tokenisation platform, the opportunities for businesses to create and capture market value in a compliant way are endless.
Stay up-to-date with the latest announcements on RWA tokenisation from Redbelly.