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Person (KYC)

A person, or a natural actor (n actor), may have to be verified by another actor for the purpose of deciding whether they can onboard them into doing potential transactions. Onboarding is a risk management process.

This RDDQ is in relation to a person being onboarded. This is a typical activity of administrators and exchanges. This RDDQ can be used for ongoing monitoring too.

Market risk (2)
Have any of your wallets been blacklisted?
2.8 Wallets that have directly or indirectly touched wallets reported to the community as having proceeds of crime
Any you aware of any transactions touching a black listed wallet in the last 2 years?
2.44 The audit trail of a transaction may show a blacklisted wallet has been used
Governance risk (3)
Will fiat funds be wired from a regulated financial institution?
3.23 To ensure any wired monies comes through a regulated entity like a bank
Have you been reprimanded by a regulator or court for money laundering abuse?
3.26 To ensure there have been no past misdemeanors that may impact any transaction
Do you reside in any of these "crypto" friendly jurisdications?
3.36 Residents in DeFi friendly jurisdictions will usually be easier to onboard
Friendly countries....
Do you have to provide tax or other reports to the USA tax authorities (IRS) such as 1099 or Facta?
3.38 Reporting DeFi holdings to US authorities is onerous and complex as has implications on other connected actors.
Have you been introduced?
3.119 Introducers may have policies and procedures to ensure they too filter out actual or potential high risk actors
Public Conduct risk (4)
Have you ever traded or conducted business in these places?
4.34 Certain jurisidictions are on government agency sanctions lists
High Risk Countries (FATF list)
Residency risk (14)
Do you reside in any of these places?
14.11 Certain jurisdictions are deemed undesirable and have a higher risk profile
Prohibited Countries (US and EU list)
Can you provide evidence of where you reside such as property tax statement or utility bill?
14.12 Residency is often required for tax reporting or sanctions reasons
Suitability risk (15)
Do you have accounts at any CEX's?
15.7 Experience in the DeFi market can help in suitability
Are you subject to any adverse media in the last 5 years?
15.121 Reviewing social media or other media may reveal behaviours that could change their risk rating
Reputation risk (16)
Have you been a Politically Exposed Person (PEP) in the last 12 months?
16.9 Actors who are exposed to government agencies are deemed high risk due to suspectabilty to corruption, fraud and conflicts of interest
"PEP database" cia.gov, Unknown. https://www.cia.gov/resources/world-leaders/
Are you related or associated with a person exposed to political activities (PEP) in the last 12 months?
16.10 Actors who are exposed to government agencies are deemed high risk due to suspectabilty to corruption, fraud and conflicts of interest
"PEP database" cia.gov, Unknown. https://www.cia.gov/resources/world-leaders/
Is there any adverse or negative media about you on Google?
16.14 Negative media coverage could indicate problematic contractual arrangements.
Accounting risk (17)
Will digital assets be traded on these venues?
17.24 Certain trading venues are deemed lower risk than others.
CEX (per CoinMarketCap ratings)
Experience risk (18)
Have you ever traded or owned digital assets?
18.5 Experience in the DeFi market
Legal risk (19)
Are you registered as a Professional / Accredited / Qualified investor?
19.6 To ensure an actor is able to proceed based on jurisidcition law and actor prefrences
Do you appear on this global sanctions list?
19.31 Certain actors are on government agency sanctions lists
Are you over 18 years old?
19.3 For some jurisdictions, age is a barrier to entry.
Do you reside in any of these defi unfriendly countries?
19.96 Some jurisdictions are unfriendly. They may have banned participation completely or made it difficult for VASPs to onboard actors.
Unfriendly countries ...
Money Laundering risk (20)
Can you provide a copy of a passport or national ID card?
20.1 To prove identity use identity documents that can be verified against other sources. For example a passport contains a photograph; date of birth; place of birth; gender; issuing country. Unfortunately most ID documents are easy to fake and verifying electronically is challenging and so other evidence may be required. Verifying a genuine document is time consuming (e.g. is the document of the correct dimensions? Many government agencies will not tell you if the document is fake) Some entities ask actors to take a selfie.
Can you provide a notarized copy of a passport or national ID card?
20.2 Professional third party confirmation of identity
Can you provide notoriized evidence of where you reside such as property tax statement or utility bill?
20.13 Professional third party confirmation of identity
Can you provide evidence as to where your wealth originated?
20.32 To verify funds come from a legitimate source such as earned income, provabe capital gains and inheritance
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No financial advice

These global standards, best practice guidance and risk due diligence questions are an attempt to make DeFi a level playing field. They are not intended to provide any investment advice. Claims made in this website do not constitute investment advice and should not be taken as such. In the meantime, it would be very useful if the jurisdictional regulators would start working together and treating these new financial related projects as a different form of instrument. The Howey Test (1946) was designed in an era of deeds of title and paper bearer certificates. DeFi can be humanless and profit is not always the motive for using protocols. TradFi Derivatives for example are based on underlyings of real assets like the fair value of incorporated companies whose value is derived from fiat currencies which are themselves derivatives on an underlying like gold or a printing machine. Fiat is seen to be a real asset which it clearly is not. The new DeFi world matches actors with agendas. Most of the time the agenda is to do things better and faster. Defi enables everyone including the bankless and unserved members of the community to transact without having to understand how to use Excel or have an MBA from an elite university or be able to able to decipher the millions of pages of legal text opinions as to whether a bitcoin is a currency, a security, a commodity, a derivative, an underlying, a valueless number, type of gambling or something that will just go away. While we wait for a consensus by the old guard, the new guard will create their own computer based standards. Our aim is to turn these standards into bots or smart contracts that do all of this behind the scenes. Image a world where the community agree on how to transact and just do it without a parental overseer who is always a bit behind the curve...

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VASP lists.

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