Ethereum-Based Shyft Network Launches, Aims for FATF-Compliant DeFi
The Shyft Network, a platform designed to help cryptocurrency firms comply with anti-money laundering (AML) rules, has launched its main public blockchain system.
Combining elements of Ethereum and Bitcoin, the Shyft
Network is an open base-layer platform that houses decentralized identity
applications, compliant cryptocurrency transactions and tools to make
decentralized finance (DeFi) palatable to regulators, without compromising
DeFi’s open appeal.
Alongside Wednesday’s mainnet launch is the unveiling of the
Shyft Federation, a diverse group of 21 entities, from core crypto development
teams to large financial institutions, that will run nodes on the Shyft Network
and ensure it has a decentralized architecture from the get-go.
Regulation of cryptocurrency is inescapable. The Shyft
project helps crypto companies meet the identity and data sharing requirements
of the Financial Action Task Force (FATF), a global anti-money laundering
group, but with the least amount of centralized trusted authority, akin to how
blockchains already work.
“A lot of projects are taking a kind of progressive
decentralisation approach,” Shyft co-founder Joseph Weinberg said in an
interview. “But we are saying this needs to be hardened, ready for primetime,
and come with really good censorship resistance across the infrastructure from
day one.”
The Shyft Federation consists of 21 private Tor nodes
(referring to “the onion router,” a layered system designed to protect
privacy), run by companies, organizations and even a sovereign government
(Weinberg wouldn’t disclose which country) that perform a function similar to
mining a blockchain. Named Federation members include CoinShares, BitFury,
ChainSafe and Fabric Labs.
Under the hood, Shyft runs a modified version of the
Ethereum Virtual Machine (EVM), a kind of software rulebook that governs the
changing state of the blockchain that is followed by all the nodes on the
network. In the case of Shyft, a proof-of-authority consensus system is
operated by the federation of nodes, with all the relaying done inside Tor to
protect against things like denial-of-service attacks, Weinberg explained.
In legacy finance, centralized technology such as SWIFT
exists to collect counterparty information and route payments. (Blockchains were
not designed to require any identity information for routing payments on-chain,
which means there is no way to determine counterparty risk.)
Shyft’s Veriscope application, a system of smart contracts
running on top of the network’s base fabric, creates a counterparty discovery
and coordination layer for crypto finance, Weinberg said. Veriscope is designed
to satisfy the data-sharing requirements of FATF’s “travel rule,” but without
sacrificing the core pillars of decentralization and open innovation, he said.
In addition to hosting the Veriscope travel rule product,
the now-live Shyft mainnet, will be home to a national identity system for
Bermuda built with the country’s government, and also a set of smart contracts
to help regulators accept and work with DeFi.
The problem encountered when throwing a lot of “know your
customer” (KYC) at a DeFi platform is that it “denatures” all that’s
interesting about the platform, Weinberg pointed out.
“The moment you add KYC, you break composability,” he said,
referring to the idea that DeFi projects can easily build atop each other.
To solve for that, Shyft offers an on-chain KYC rules engine
that can be customized so that, for example, a KYC policy from one institution
can be made available across many institutions at once, or pre-defined rules
can be created around particular institutional liquidity pools and users can
choose to opt in, Weinberg said.
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