Know your customer

So that's the way that we'll get this in the U.S. And I think, you know, as the U.S. has the right to do, it might have a couple tweaks to it that make it more palatable to the U.S. regulator to create that safety and trust that they're striving for.

So there might be some KYC attestation on chain.

These are things that we've kind of helped pioneer recently.

from a technology point of view.

The workaround allowed meme coin purchases made with Visa credit cards to be processed under a merchant code intended for ordinary digital media.

The move comes after the block published an investigation finding that users of the Robinhood wallet and FOMO apps could purchase meme coins with credit cards through Apple Pay or Google Pay without completing a separate KYC process.

The block's test purchases, powered by CrossMint and made with both Visa and MasterCard credit cards, were coded as digital goods media, a category typically used for e-books, movies, and music, rather than as crypto transactions that allowed customers to earn ordinary credit card rewards, such as points or cash back, on the meme coin purchases.

Chase told the block that one Visa transaction had not been flagged as a cryptocurrency purchase, had been assigned the wrong merchant category code, and should not have earned any rewards.

Thanks for having me.

But today's topic is know your customer reducing KYC nightmares.

And Anders, I have to say that as we look at and start the discussion, KYC is either the biggest pain point or one of the biggest pain points in corporate treasury.

People care about it.

It seems like that everything's changing dramatically.

And it's a growing pain, that's for sure.

And I think also one of the reasons it's a pain is that because it's not something that treasurers enjoy working with, right? So there are some pains that you accept because it's part of your job and it's part of the discipline you're in.

But for treasurers, I actually haven't met anyone who loved KYC.

Well, I've got a hot take on this that you might disagree with, which I'll get to in a minute after I've given the story.

Yeah, HODLHODL is a peer-to-peer Bitcoin marketplace with no KYC.

They trade settle through a kind of two or three multi-sig escrow where HODLHODL holds one of the keys and you buy from another peer essentially.

So buyer has a key, seller has a key, and HodlHodl has one for arbitration purposes.

On the 18th of September, HodlHodl announced, quote, enhanced Bitcoin security scoring, where incoming Bitcoin will be checked for, quote, serious red flags before a contract settles and trades with bad score would be blocked.

HuddleHuddle said it was, quote, not a KYC AML process.

Users pushed back pretty hard.

And on September the 19th, just one day later, Anna from the HuddleHuddle team posted a follow-up where she kind of basically said, you know, we kind of got this wrong or this could have been announced better.

I remember that was the time when we didn't know if institutions would be able to build on top of public permissionless chains.

And so the fact that Biddle was sure it was gated at the smart contract for you had to be KYC, KYB, but you could still access it on Ethereum, that was a huge deal.

And then now, they launched two additional funds in August, now one in September.

And so you've got the potential of these money market funds being used as reserves for stablecoin issuers.

But when we start talking moving $100 million from JP Morgan to Fidelity, that stablecoin isn't what's actually moving, right? At some point, that treasury or that dollar representation has to move to the correct custodian.

The second side of that, though, and it's in a bigger picture, is as we look at stablecoins, we have to have a way to KYC and know who's touching these assets.

And so if you send $1,000 to, let's say, Syria, If I want to get that money back from the same business I sent it to, I have to be able to say where it touched, who had it.

Did it hit an OFACs list? Did it hit a sanctions list? Yes, no, et cetera.

Someone like JP Morgan gets to run a supernode that holds a proof of authority node.

that first checks every transaction.

If, for example, and we allow decentralized transactions, let's say it's no KYC.

We have no idea where this wallet's from.

On-ramp, off-ramp, in tens of millions maybe, if you have it in crypto, now it's in Swiss francs or in dollars and you have it in the financial system.

You had to pass the KYC AML to begin with to be onboarded.

But once you are there and your coins are checked, actually, they're as good as fiat currencies.

So those were the early solutions, right? And then in 2020, we actually started doing derivatives.

Generative AI allows fraud perpetrators to manipulate identity checks, construct realistic WhatsApp or email screenshots, and bypass voice authentication.

For example, Know Your Customer identity verification, which may include asking new customers to send photos of themselves when opening an account, can be bypassed.

Companies that develop KYC tools are trying to catch up, but AI is moving faster and faster every day, so we've got more sophisticated models.

Perpetrators can also leverage AI to manipulate organizations into generating content that might falsify a claim, says Igbo.

He cites the example of a large-scale motor insurance fraud where the scammer made 25 fraudulent claims worth over £440,000.

What I do know is in an agentic world, we're going to have to solve for a whole bunch of new problems.

Today, the banking system, the financial system is regulated, and we all go through processes called KYC, know your client, or KYB, know your business.

There is a universe where we're gonna have to create new technologies or know your agent, because we can't have rogue agents going out there spending money.

And I think this is one of those really interesting areas where you've got two problems that you need to solve.