The cryptography industry has experienced a significant change towards regulatory compliance since its inception, according to James Smith, co-founder of Elliptic, a crypto compliance company created in 2013.
“At the beginning, only a few companies approached compliance seriously,” Smith told Cointelegraph during the Token2049 event. “Coinbase was our first customer – they knew from the start that they wanted to create their business in this way. But for most others, it was simply not a major priority. ”
It started to move as regulators, including those of New York State, was more actively interested in the cryptography industry. The involvement of traditional financial institutions such as Fidelity and DBS Bank also contributed, as they have entered space with established expectations of traditional financing services.
Fidelity, for example, offered its first cryptography service for customers in 2019, while the Asian giant DBS created a digital exchange for accredited and institutional investors in 2020.
“We have seen a big change in the past two years. Exchanges on the world map are concerned about compliance now, because they want to be part of a world ecosystem,” said Smith.
In relation: DEFI security and compliance must be improved to attract institutions
Questions of conformity after piracy of Bybit
Crypto exchanges and peer protocols remain the main targets of compliance in the industry. For the authorities, these companies are considered to be critical points where anti-flowage controls and financial monitoring controls come into force. At the same time, they are frequent candidates for sophisticated hacks and laundering operations, as seen in the tactics of the Lazare group.
The latest example comes from the piracy of Bybit, where the Lazare group is committed to a sophisticated money laundering program to channel the funds. The hackers quickly exchanged tokens with low liquidity for Ether (ETH), then exchanged them against Bitcoin (BTC) using decentralized NO-KYC exchanges (know your customer).
“They have undergone exchanges without KYC, which should probably not exist, but also through a decentralized protocol where there were a lot of liquidity supplies that allowed them to put it in Bitcoin,” said Smith, adding that “we are doing too easy for them as an industry”.
Smith also noted that even after companies reported funds as stolen, users continued to exchange them via decentralized platforms. “Why was there so much liquidity available to help whiten this money?” He said, arguing that those who provide liquidity to such protocols should be subject to basic checks on the source and the destination of funds. “Go watch who earns money. And this is the first place to start putting controls.”
Magazine: The favorite feat of the revealed Lazarus group – Analysis of Hacks Crypto
