1inch Takes Proactive Measures Against Financial Crime in the DeFi Space

The popular DeFi protocol 1inch has been actively screening millions of wallets for Anti-Money Laundering (AML) risks since 2022. This initiative, in collaboration with blockchain intelligence provider TRM Labs, has enabled 1inch to identify and block hundreds of high-risk addresses, shedding light on the evolving challenges of maintaining financial integrity in a decentralized landscape.

AML Screening Unveils High-Risk Addresses

1inch, known for its deep liquidity, multi-chain support, and competitive exchange rates, has been a pioneer in the DeFi sector. The platform, with more than 11 million users and an overall trading volume exceeding $400 billion, has taken a bold step to address the rising concerns associated with illicit activities within its network.

TRM Wallet Screening, an on-chain AML and sanctions risk-detecting tool developed by TRM Labs, has played a crucial role in sharpening 1inch’s understanding of financial crime risks. The screening process, implemented since August 2022, has led to the identification of high-risk addresses linked to various illicit activities, including child sex abuse material vendors, scams, and hacked and stolen funds.

Navigating an Undefined Regulatory Landscape

The regulatory landscape surrounding decentralized finance is currently undefined but rapidly evolving. While traditional regulatory focus has centered on centralized cryptocurrency spaces, the transition to decentralized platforms poses unique challenges for regulators, policymakers, and industry participants alike. The question of how to ensure lawful transactions while mitigating the risks from illicit actors is at the forefront of discussions.

Despite limited regulatory guidance for DeFi platforms, 1inch has taken a proactive stance, recognizing the need for compliance measures to address AML risks and partnering with TRM Labs to leverage cutting-edge blockchain intelligence.

Proactive Compliance Measures

To overcome the uncertainty surrounding regulatory obligations in the DeFi space, 1inch has integrated TRM Wallet Screening into its decentralized application (dApp) and wallet. The tool routinely screens user wallets, creating a dynamic list of high-risk addresses. This list is then cross-checked with end-users interacting with 1inch’s API, ensuring that those with potential connections to illicit activities are restricted from accessing the platform.

TRM’s API enables 1inch to query data about addresses or transactions, providing risk scores indicating ownership risk and counterparty risk. Based on these risk factors, 1inch systematically restricts users from conducting transactions via its services, thereby fortifying its platform against potential threats.

Fusion Mode and Further Compliance Measures

In its Fusion mode, 1inch goes a step further in enforcing compliance measures. Swap transactions are executed by resolvers or professional market makers, requiring them to undergo a thorough verification process, including customer identification and wallet screening checks. TRM’s API, in conjunction with a third-party web3-focused identity verification service, enhances the platform’s security by screening wallets while KYC/KYB processes are performed on resolvers.

Transforming Financial Security

1inch’s implementation of compliance tools across its products and services has transformed its visibility of financial crime risks associated with users and their funds. The ongoing collaboration with TRM Labs has resulted in the steady increase of wallets screened monthly, showcasing the platform’s commitment to staying ahead of potential threats.

As the DeFi regulatory environment takes shape, 1inch remains at the forefront, exploring additional ways to uplift its compliance program. The platform’s proactive approach serves as a beacon for the industry, highlighting the potential for self-regulation and continuous improvement in compliance practices. In an era of increased scrutiny, 1inch’s commitment to a safer DeFi system underscores its role as a leader shaping the future operating context of decentralized finance.

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