DeFi platforms can comply with regulations without compromising privacy — Web3 exec

cointelegraph.com:

Decentralized finance (DeFi) has been a rapidly growing sector of the cryptocurrency industry, but it has also faced significant regulatory challenges. With regulators struggling to keep up with the pace of innovation, the lack of clarity around regulations tends to create uncertainty for DeFi projects.

Cointelegraph spoke to Alastair Johnson about regulatory challenges facing the DeFi industry. Johnson is the CEO of an identity “super-wallet” called Nuggets that seeks to deliver verified self-sovereign decentralized identities to users. He said that one of the main regulatory challenges is DeFi platform anonymity, which makes it difficult to comply with Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations. 

Although privacy is a cornerstone of DeFi, regulatory compliance is essential to protect users and ensure that DeFi platforms are operating within the law. Speaking on how DeFi platforms can balance the need for privacy with regulatory requirements, Johnson shared that “Regulatory compliance will involve implementing AML /KYC procedures. This can be done without compromising user privacy by using non-correlatable peer decentralized Identifiers (DIDs) and zero-knowledge proofs. In addition, auditable data can be encrypted to protect the participant's private keys but still in accordance with regulatory requirements.” 

 “DeFi platforms can incorporate privacy-enhancing technologies like zero-knowledge proofs and homomorphic encryption to protect user privacy while still adhering to regulation,” he added.

According to Johnson, DeFi platforms can take measures to ensure compliance with regulations while maintaining their decentralization. He explained “DeFi platforms can incorporate decentralized identity