Bridgetown, Barbados, Today, Shyft Core, in collaboration with Binance, Deribit, Bitfinex, BitMEX, Tether, Huobi and other collaborating Virtual Asset Service Providers (VASPs), announced the launch of Veriscope, a decentralized compliance framework and smart-contract platform for VASPs to enable travel rule compliance.
Participating exchanges are collectively initiating or evaluating the phased deployment of Veriscope on the Shyft Network, a decentralized infrastructure designed to aggregate and embed trust, validation and discoverability into data stored on public and private ecosystems.
Malcolm Wright, Chief Compliance Officer at BitMEX and Chair of the Advisory Council at Global Digital Finance, said: “In 2019, the FATF tasked the industry to develop a technical response to the Travel Rule (Recommendation 16). This was no easy task as there are a number of technical challenges to doing so – particularly discovery of who a counterparty VASP is to a transaction. The Veriscope solution provides for an answer to this problem that causes the least customer friction, whilst at the same time respecting data privacy, data consent, and security to the greatest extent.”
Veriscope is the result of a collective effort of some of the largest exchanges (by global volume), set out to collaboratively build a decentralized solution for global compliance standards, including the FATF’s Travel Rule guidance. Veriscope was designed, built and programmed to assist exchanges to meet these requirements by facilitating address discoverability, and KYC data exchange without unnecessary exposures of user’s data.
Jonathan Farnell, Director of Compliance at Binance, said: “In order to truly make data transmission systems work at the scale of the largest VASPs today, we need open solutions that provide the highest level of security on behalf of our users. Blockchains enable global systems that address coordination while at the same time ensuring auditability across hundreds of countries, millions of users, and billions of transactions. Coming together as a global coalition to deploy this solution ensures the rest of the industry has a unified standard, and an open architecture, to help everyone meet global regulatory requirements. It is our responsibility to give clarity, lead regulatory standardization during this transition phase, while also helping smaller VASPs to define secure data requirements that sit at the forefront of regulatory transformation.”
By linking user consent-permissioning with VASP-to-VASP data transmission, Veriscope’s design ensures VASPs can determine the difference between honest transactions and data attacks while maintaining GDPR requirements and a trustless audit trail across counterparties. This coordination architecture eliminates the reliance on centralized trust and long-term reconciliation with counterparty VASPs that may or may not exist in the future.
Peter Warrack, CCO of Bitfinex, said: “Technology that allows VASPs to distinguish between transfers that are coming from or going to another VASP – solving the discovery problem – fulfills an important role in travel rule compliance. Veriscope’s solution for the discovery problem may be helpful in accelerating travel rule compliance and, as a consequence, the adoption of cryptocurrencies by traditional financial institutions.”
Joseph Weinberg, Shyft Network Co-founder said: “The goal of Veriscope was to design a utility that would enable a decentralized coordination system to address global data transmission requirements. In achieving this goal, Veriscope ensures that VASPs maintain full business sovereignty, determines counterparty requirements cross-jurisdictionally, while maintaining a decentralized system that isn’t owned by any one group of VASPs.”
To ensure Veriscope’s success, the participating exchanges also created the Veriscope Governance Task Force. Chaired by Rick McDonell, former Executive Secretary to the FATF, and Josee Nadeau, former head of the Canadian delegation to the FATF, the Task Force came together to collaboratively work on governance requirements for counterparty onboarding, information indexing, and Know Your Business (KYB).
Regarding the Task Force, Rick McDonell said: “all systems require a reliable governance framework and workable operational rules. This is true for both the real world and the virtual world. But while the real world has had a long history of devising systems the virtual world has not. This is especially the case in the transfer of money or value which, with new technologies, allows instant transfers but has not had the balancing rules for compliance with global standards and national regulatory requirements. This is now changing with the launch of the collaborative Veriscope system which bridges the gap between highly efficient technology and the need to provide accurate, timely and protected compliance information.”
Jos van Griensven, Head of Legal & Compliance at Deribit said: “Deribit is glad to join Veriscope as it offers an important step towards adhering to the Travel Rule requirements, whilst at the same time protecting client sensitive information. Global regulatory standards and requirements are changing and we strongly believe the best approach is a coordinated effort by globally trusted platforms to form a feasible approach and set new sensible standards.”
The Governance Task Force is exploring solutions specific to the governance framework and rules around the types of information that VASPs need to provide with respect to onboarding with Veriscope in order to become recognized and discoverable participants. This work applies not only to the current state of the ecosystem but also to institutional participants that are entering the space.
Veriscope balances decentralization and compliance while making a system that also accelerates financial institution co-integration with the digital asset ecosystem.
Example: Two cryptocurrency holders, one has been onboarded and verified by VASP A, while the other has been onboarded by VASP B. If these users, let’s call them User 1 and User 2, wanted to transact between them using their exchange addresses, neither VASP A, nor VASP B would be able to know: a) the originating source of the transaction, b): jurisdictional regulatory information regarding the VASP or user c) if the transaction has been initiated honestly or maliciously by the user; and how to best coordinate data transmission in regards to the transaction. With Veriscope, both exchanges would be able to, in real-time, identify the receiving address, the validating exchange, confirm that the exchange can obtain proper KYB information on a counterparty, understand both VASPs data sharing requirements & ensure the transactions are honest to prevent user data hacks while users’ PII is being transmitted securely.