Compliance is an Evolving Target and We'll See How the Regulatory Landscape Evolves - Ben DiScipio

Ishan Pandey: Hi Ben, welcome to our series “Behind the Startup.” Please tell us about yourself and the story behind Bloom?

Ben DiScipio: Thanks, Ishan, I’m happy to have this opportunity to chat. I’m Bloom’s Chief Strategy Officer. Coming to Bloom from the Investment Banking world, where I co-founded a broker-dealer exploring digital securities issuance and trading, I’m acutely aware of the issue’s regulation to innovation. DeFi has been able to operate and generate steam outside of the direct watch of regulators, but that landscape has begun to shift. Regulatory bodies are increasingly focusing on us now, and projects need to start to prepare. DeFi projects, both established and startup, are scrambling for solutions for regulation.

I could not be more excited about the company’s prospects right now. Bloom was at the forefront of decentralized identity, with a solution in the market in 2017. We were early members of the Decentralized Identity Foundation (DIF), helping to set standards for the space. Our mobile app, which stores verified [or verifiable] credentials such as KYC, sanction checks, bank balances, salary verification, credit, utility payment history, social media logins and more, has over a million users and is growing.

Ishan Pandey: Please tell us a little bit about the DeFi-focused protocol OnRamp and how it exactly works?

Ben DiScipio: OnRamp makes it possible for DeFi companies to access and rely upon verified credentials, which were previously only available to traditional financial services organizations, such as KYC, sanction screening, financial verifications, etc., as part of their onboarding process. Clients can filter according to verifications and ultimately whitelist users directly to their smart contracts on-chain. We are solving a central problem for the rapidly growing DeFi market and we present an elegant solution for lenders looking to participate in the undercollateralized market.

The user side represents a friendly onboarding experience for both traditional DeFi users, who value decentralization and new users to the space, for whom data privacy and access are important issues. Our users have believed in decentralized identity for years and many are very passionate about it. Delivering ready use cases for their verified credentials has the potential to increase participation in DeFi dramatically. That is really exciting for us.

Ishan Pandey: In what ways can a protocol provide safe access to reusable, verifiable credentials (VCs) for ID verification, sanction screening, and PEP screening? Also, how can enterprises ensure user privacy and what are the compliance requirements surrounding this arena?

Ben DiScipio: To give you a technical explanation, WACI is the protocol for sharing/requesting and claiming/issuing VCs. We created this protocol and donated it to the DIF. That protocol enables a data requester (OnRamp) to get VCs from the user. At that point, it’s just the VC spec that details how to verify the Verifiable Presentation (VP) and the VCs. The VP is basically a signed object that contains the VC’s the user is sharing with the requester. It protects against replay attacks and ensures that the DID sharing the VCs is the owner.

Enterprises have their own privacy policies and procedures for handling PII, but we give them the option to handle as little or as much as they feel necessary, hopefully reducing the overall risk of exposure. Then, it is the user’s decision as to whether they are comfortable sharing that information with the provider.

They have full authority. OnRamp can facilitate metadata collection for the requesting company if needed, but the protocol itself does not pass data. It verifies it. For instance, a DeFi platform looking to onboard a user could merely request that we verify that the wallet address’s owner has been KYC’d and passed sanction screenings without any PII changing hands.

Ishan Pandey: The idea of decentralized finance is now being recognized as a critical shift in the way financial markets operate. In what ways has DeFi affected the traditional financial market and how has it impacted the industry as a whole?

Ben DiScipio: I think because DeFi parties have developed in an environment ahead of regulation, they have been able to test and validate the technology and its potential use-cases for finance. There is a lot to unpack here as we move forward, but there’s no question that DeFi has the potential for disruptive efficiency and I think that is what has led to large institutions dipping their toes in. We see the beginnings of institutional involvement from many corners and that is a validation of both the threat and the potential of DeFi.

Ultimately, I believe traditional financial markets are going to change. I think we all know it. Will it be quite to the level shown in today’s DeFi projects? That’s going to be a negotiation between the DeFi space, traditional financial institutions and government/regulatory agencies. Eventually, they’ll all find an equilibrium. I do believe that the change is overdue. What’s important to regulators is protection and accountability. I think DeFi holds the potential for both to be present while allowing for this new technology to flourish. We believe we can be a central piece in that evolution.

Ishan Pandey: Decentralization is frequently associated with ideals such as decision-making involvement, democracy, equality, and liberty from the central power. According to you, will we soon witness mass adoption of blockchain technology across all sectors owing to the aforementioned factors?

Ben DiScipio: In order to achieve mass adoption, it needs to be easier for ordinary people to understand and participate. Like most changes, it starts with the younger generations. Millennials are participating in Defi in large numbers, with new converts daily. The growth of NFTs and the increased use for gaming has the potential to bring throngs of new converts to DeFi. Will it scale generationally? That is a question that the adoption of mobile phones could be a model for. I think DeFi will follow similarly. This is about more than money, it is about how we prefer to interact and begins to resemble a political movement. I think that invigorates all of us in space!

Ishan Pandey: There are currently very few DeFi companies that are compliant with legislation around the globe, and this must be rectified if these companies are to realise their full potential. From a regulatory standpoint, can you tell us about the basic minimum compliances these entities must abide by?

Ben DiScipio: I do not want to get into a laundry list of country by country requirements and the nuances of compliance and regulation. It would take more than a couple of paragraphs to address that. I will say that KYC, sanction-screening, and rules of privacy and engagement are the general focal points. Decentralized Identity and Reusable Verifiable Credentials are certainly essential pieces for the future. Compliance is an evolving target and we are going to have to see how the regulatory landscape evolves. It will be interesting to follow the evolution of regulatory oversight in the DeFi space. At Bloom, we aim to be ready with VCs to assist with however the process shakes out.

Ishan Pandey: What role has the pandemic played in allowing traders to profit from cryptocurrency investments? Also, what do you think the post-covid-19 scenario would look like for the blockchain ecosystem?

Ben DiScipio: I read an article a few months ago about millennials quitting their jobs to trade cryptocurrencies. It is interesting. So, COVID presented many people with more time on their hands than they have ever been used to. Add to that a potential sense of despair or cataclysm, which can fuel otherwise irrational decisions, and you have a recipe for lots of people learning about new things at an accelerated rate and then dumping money in things like crypto and DeFi, because of how they are supposed to trust traditional finance now when things are falling apart around them? It is a rare situation that does not usually happen in a lifetime.

I think it is clear that it has positively affected the meteoric rise in crypto value, but it is anyone’s guess where it goes from here. There are pundits on both sides of the (bit)coin. DeFi has a foothold in millennials and our younger generations will be fueling its adoption. As wealth increases among millennials, and they have the opportunity to preach its values and potential to their parents, the change from traditional finance will have begun. Furthermore, blockchain technology will no longer be an unknown as it permeates health records, identity, governments, and all sorts of other compelling use cases.

Ishan Pandey: Elon Musk’s tweets have endorsed DeFi and the entire community has been instilled with confidence in the DeFi ecosystem. However, the recent Bitcoin price rally and the subsequent slump have shown the world how a tweet can make or break the market. In this regard, what is your take on the matter and how do you think the DeFi space has been affected by Elon Musk’s tweets?

Ben DiScipio: Elon Musk is an influencer and we live in the age of influencer marketing, whether it’s Twitter, YouTube, Instagram, Telegram, Discord, you name it...we follow those we admire. Tweets may be newer but are the concept new? What makes it feel new is the impact that it can have on markets and potentially crypto pricing, but I think that is more a commentary on the way people participate in the markets today than they did years ago. Technology and day-trading allow the market and crypto to move dramatically on a more regular basis because communication is more readily available. It is reactionary. Communication and influence are nearing immediate, and markets will need to adjust accordingly to limit their influence. I see that as a possibility. Nevertheless, I do think there is comfort with it in the DeFi space. It will be interesting to watch.

Ishan Pandey: In what ways do you think Covid-19 has affected decentralized finance and what has been the overall impact of the pandemic on global finance?

Ben DiScipio: I think I answered this earlier, but this is such an important question. It is probably a good one to wrap up with. Covid-19 created an extraordinary confluence of events that have the potential to change the world and the way we interact with it and each other. DeFi is undoubtedly an essential piece of that. That is how we interact with each other financially and it is significant. It likely has accelerated changes and paradigm shifts by decades and potentially brought about changes that may never have occurred otherwise. Fear of death and the fallibility of financial markets and governments is pretty heady stuff. It is lovely that it happened because we here at Bloom believe passionately in spreading financial inclusivity. It is why we were founded and it is the lens through which we see our work.

OnRamp gives us the chance to make decentralized identity meaningful in people’s lives. Verifiable Credentials have the power to reinvent how we view identity and what factors are important to us as we assess risk for all types of endeavours. The more we can see people and identity as more than one set of truths, but an array of multi-faceted truths like DNA begin to tell a story, the closer we get to financial inclusivity.