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Category: CRYPTO NEWS
The post Oracle Can Be a Go-To Solution for AML in DeFi – This Is How appeared on BitcoinEthereumNews.com. HodlX Guest Post Submit Your Post Six steps on how an AML oracle for DeFi can work as a part of an atomic transaction It’s no secret that DeFi (decentralized finance) and AML (anti-money laundering) policies are difficult to align. Regulators and industry players advocate for the importance of regulation, but we face the stark reality – it’s nearly impossible to implement effective oversight in this space. Meanwhile, stolen funds continue to be laundered through DeFi tools. How do we balance decentralization with legal obligations? Using oracles becomes an effective solution. Why traditional AML fails in DeFi – security and limitations of smart contracts Traditional AML policies struggle to adapt to the DeFi ecosystem because of a significant limitation. Smart contracts can’t make decisions that require external information, such as passing AML checks. These contracts are limited to the data available on the blockchain they run on. They cannot directly access data from other blockchains or external sources, such as websites or APIs. This is because smart contracts are executed by blockchain nodes, which do not have built-in internet connectivity and can only connect to their own blockchain. This design is intentional to preserve the security and decentralization of the blockchain. Blockchain consensus requires that all data used in a transaction must be recorded on the blockchain before the transaction can be executed. This ensures that the network operates in a trustless and secure manner, with all nodes agreeing on the same information. If smart contracts could connect to the internet, they would introduce security and operational risks. External data – like from websites or APIs – doesn’t follow blockchain rules, making it possible for manipulated or false data to be fed into the system. Oracles bring additional information to DeFi apps This is where DeFi oracles play a key…
2025-01-31T04:41:20+00:00