Chainanalsyis firm has introduced two online tools which can help the cryptocurrency sector to check list of sanctions to avoid any embarrassment.
As many countries in the world continue to leverage economic sanctions on Russia following Moscow’s offensive in Ukraine, decentralised Web 3.0 groups like decentralised exchanges (DEXs), decentralised finance (DeFi) platforms, decentralised autonomous organisations (DAOs), and decentralised application (DApp) developers are searching for ways to help them and their customers comply with sanction policies.
“These tools will enable users to easily validate they are not interacting with cryptocurrency wallets associated with sanctioned entities,” Chainalysis said in a press release today.
The first tool, which is immediately available, is an on-chain oracle. It is a smart contract aimed specifically at DeFi projects, which can validate whether a cryptocurrency wallet address has been included in a sanctions list.
In this case, all wallets included on sanctions lists provided by the US, EU and the UN will be automatically available to anyone running the oracle.
The second tool, which is scheduled for release next month, is an application programming interface (API). An API uses the same data as the on-chain oracle to validate whether a wallet is included on any sanctions designation.
However, this API is designed for use on a broader variety of applications, including centralised crypto exchanges and mobile user interfaces.
The two tools being fast-tracked will be offered free of charge to the crypto industry.
“Now is the time for the industry to demonstrate that blockchains’ inherent transparency make cryptocurrency a powerful deterrent to sanctions evasion,” said Michael Gronager, Co-Founder and CEO of Chainalysis.
“In anticipation of ongoing sanctions, we’ve prioritized the development of these tools so that all cryptocurrency market participants have what they need to harness this transparency and conduct basic sanctions screening at no cost to them.”
US-based crypto exchange Coinbase has also supported the idea that the public nature of cryptocurrencies can assist governments in enforcing sanctions.
Whereas traditional fiat currencies allow bad actors to use shell companies, tax havens and opaque ownership structures to “obscure the movement of funds,” crypto assets are fundamentally public and traceable, which helps authorities “detect and deter evasion,” said Coinbase chief legal officer Paul Grewal in a blog post earlier this week.
To comply with AML/CFT (Anti-Money Laundering/Combating the Financing of Terrorism) regulations and sanctions policies globally, most centralised exchanges like Binance, Kraken and Coinbase implement strict Know Your Customer (KYC) requirements, which provides much more extensive data and capabilities.
However, many DEXs and protocols that have more recently grown in popularity operate more anonymously and do not incorporate tools that allow for effective management of sanctions risk. Chainalysis believes its new offerings can provide these platforms an easier way to conduct basic sanctions checks to help manage reputational and sanctions enforcement risk.
