With the news that January trading volume on decentralized exchanges reached an all-time high (above 55 billion - can you imagine?), unfortunately, an increased risk of money laundering (ML) occurred as well.
While it is true that you can easily pick up a “considerable” trail of dirty money by simply trading, there are some sensible precautions that can be taken to avoid falling foul to bad actors.
Let me start from the beginning and give you some advice on how to keep yourself safe from filthy, dirty coins.
DEXs are blockchain-based peer-to-peer (P2P) online services allowing users to make direct crypto transactions with each other. The ambiguous feature of DEXs is that they don’t require users to pass know-your-customer (KYC). To be fair, it’s both exciting and scary.
On one hand, making a transaction has never been easier before. You create a wallet and start trading within a matter of seconds without disclosing any personal information. Attractive, isn’t it?
But what if you decided to abuse it for money laundering (ML) or terrorist financing (TF) purposes? Or what if you were an honest market player who accidentally ended up receiving dirty coins in the liquidity pool?
Not so attractive anymore …
What are the risks?
Let’s outline all the risks occurring due to the lack of anti-money-laundering (AML) compliance.
Liquidity pool users
Users will unwillingly take the high risk of picking up someone else's “dirty” money trail once they decide to withdraw their assets back.
Liquidity pool operators
Having a product to run means taking responsibility for the funds that the pool holds. The value of the product is completely demolished once it is not credible for all users. It is especially hard to earn users’ trust when your product doesn’t comply with money laundering and governmental KYC regulation.
DEX traders
There is no way you can classify coins on your own with no external help. Only by keeping the history of each transaction, you will never be able to defend whether you knew the buy or sell was “clean”.
What can you do to avoid it?
Sanitary measures:
- Check your wallet frequently for a high ML risk score
- Send the address of desired liquidity pools before supplying to apps that deal with AML protocols
- Check the people you’re trading with
- Get yourself verified credentials (VC) that will assure that you’re clean