PureFi Integrates KYC/AML with Uniswap v4 for Enhanced Compliance

PureFi, a compliance protocol based on zero-knowledge proof (ZK-proof), has launched its Know Your Customer (KYC) and Anti-Money Laundering (AML) integration for the Uniswap decentralized exchange (DEX). This integration aims to address security and compliance concerns at the protocol level. The integration can be implemented as part of any Uniswap v4 pool and was deployed as part of the PureFi DEX Uniswap implementation, replacing standard interfaces with custom compliance routers.

The new decentralized finance (DeFi) platform introduces a level-based verification system that scales checks based on transaction volume. At low volumes, the checks involve basic identity and sanctions verification. At high volumes, the checks include comprehensive KYC with risk-based wallet scoring and real-time monitoring. This approach ensures that compliance measures are proportionate to the level of risk involved in transactions.

However, not everyone is convinced by this approach. Hedi Navazan, the chief compliance officer at a DEX aggregator developer, expressed concerns that relying on transaction volume thresholds for progressive compliance enforcement is not sufficient. She argued that risk assessment should be holistic, considering a variety of factors rather than a singular indicator like transaction volume. Navazan believes that the complex risk profile of DeFi and financial ecosystems demands a more comprehensive approach to compliance.

PureFi CEO Slava Demchuk defended the implementation, stating that compliance is usually implemented on the front-end and not in the underlying smart contracts on the back-end. This leaves protocols vulnerable to interface bypass by bad actors interacting with smart contracts directly. Demchuk explained that through the Uniswap v4 hook, PureFi addresses a long-standing industry-wide blind spot, providing a middle ground to preserve privacy while aligning with regulatory standards.

The exchange is currently fully operational for the UFI/BNB trading pair, serving as a blueprint for future implementations. The modular design allows offchain updates to compliance rules, centralizing the part that must be changed as regulations evolve. This design enables easier adaptation to changing regulatory environments.

Navazan emphasized the need for a more tailored approach to compliance in DeFi, noting that solutions developed for centralized finance are not suitable for its decentralized counterpart. She highlighted the different priorities of DeFi, which prioritizes privacy and autonomy. Navazan raised concerns that while mixers and privacy coins are on regulators’ watchlists, the use of ZK-proofs might help in providing compliant-friendly privacy, making regulators more likely to allow for privacy-preserving financial instruments.

Navazan further highlighted that regulatory adoption is the biggest challenge for DeFi, with regulators equating financial transparency to seeing every transaction and identity. She noted that ZK-proofs changed that model and asked if regulators would adopt proofs instead of raw data. ZK-proofs are a family of advanced cryptographic protocols that allow mathematically proving an aspect of some piece of data without revealing the underlying data. This ensures that no additional data is leaked beyond the fact that the proven claim is valid, making them better suited for onchain storage if necessary.