About The New KYD Around The Block – a Talk With Marcin, RedStone’s COO
A couple of weeks ago RedStone launched KYD Oracle. We already wrote about it in one of our weekly reports but we were quite interested in the underlying technology and ethos behind this new type of Oracle, so we had a little chat with Marcin, the COO of RedStone. Enjoy.
Q: We’ve seen the announcement regarding KYD Oracles and were wondering if you could give us some context about how the project came to be. What is your vision for the world of DeFi and how does the KYD Oracle fit in?
A: The next DeFi growth cycle will not be triggered by parties that are careless about regulations & AML rules. Institutions & seasoned Web3 builders want to embrace the new weave with compliance, but not killing usability – that’s where KYD Oracle comes in handy, between no-KYC and full-KYC
Q: Can you help explain how the KYD Oracle collects on-chain information and creates a risk score? Does the KYD Oracle only collect information from one chain or is it able to provide a risk score for a user across chains, leveraging something such as the Ark Protocol? If not, do you plan to develop it in the future?
A: MVP of KYD Oracle takes a database of all addresses that went through KYC with Coinbase and creates rules for white/black listing based on that database. In the future KYD Oracle could become cross-chain, especially utilising Warp Contracts & Arweave.
Next step we want to focus on scrapping database of addresses that interacted with mixers so users can create rules based on that.
Q: You claim that the KYD Oracle allows DeFi institutions to perform their AML/KYC processes in an anonymous manner, so it poses less risk than the classical TradFi processes. But if the institutions already knows who the person is, aren’t you basically enabling them to profile their users based on their blockchain activity and link it to their identity?
A: KYD Oracle is a “soft” version of KYC, rather minimising the risk of getting involved with dirty money, rather than clearing it out.
We get no info about the address owner, but rather the specific address’s past activity – think of it as a verifier of the historical behavior of an address that then allows you to accept or reject transactions from this address based on your rules i.e. Hard NO to addresses that has history with mixers.
Put it differently: KYD Oracle is like a knight’s shield, it won’t stop each arrow but would dodge most of them, and some deadly ones.
Q: Considering that DeFi’s ethos is to provide free finance for all, are you certain the KYD Oracle is a step in the right direction? Are you worried that you might be enabling financial institutions access to DeFi and hence, allowing them to build the same restrictive financial system all over again?
A: Using such an ethos brings ethical questions, i.e. should DeFi be a means for terrorists to organize crimes? Such an approach can be too dangerous and utopian. For sure, DeFi should increase financial inclusivity and solve CeFi problems. By design blockchains won’t let institutions replicate CeFi systems, so we do not worry about that. On the contrary, we see an opportunity in Institutional players bringing enormous liquidity & seasoned approach, where self-taught finance people might not have found the most optimal solutions.
Q: You mentioned you are researching other Zero-Knowledge proofs in order to integrate these in the KYD Oracle. Can you tell us which areas are you looking at? What exciting things should we expect for the future?
A: We believe zk proofs could be the future of L1 scaling and we want to be on top of innovation brought in the space. At the moment we want to focus on more sophisticated databases & client discovery – we need adoption first. In the future, we will definitely leverage our remarkably good relationship with teams such as zkSync, Scroll, or Aleph Zero to get the advantage of the zk space.