A regulatory technology firm called Micapass, based in Vilnius, Lithuania has raised money from “SUPER HOW?” and “Firstpick” to create a novel Know Your Customer (KYC) solution for web3 users and decentralized finance (DeFi) protocols. In the essay that follows, writer Nurcin Metingil discusses how Micapass intends to use state-of-the-art Anti-Money Laundering (AML) compliance solutions to target the decentralized finance (DeFi) area in order to enhance regulatory supervision and halt illicit activities in the cryptocurrency field.
Micapass, a Vilnius-based regulatory technology startup, has secured a €240K investment from “SUPER HOW?” and the Baltic startup accelerator “Firstpick” to develop an innovative Know Your Customer (KYC) solution for decentralized finance (DeFi) protocols and web3 users. The RegTech startup offers advanced Anti-Money Laundering (AML) compliance solutions to enhance regulatory oversight and prevent illicit activities in the cryptocurrency, particularly within the decentralized finance (DeFi) sector. Micapass will use the €240K investment to further develop its AML compliance tool, with a focus on incorporating AI-based features and expanding support for multiple blockchains. This will strengthen their solution’s ability to prevent illicit activities in the cryptocurrency market.
Exploiting weak Anti-Money Laundering (AML) crypto policies, crypto criminals are taking advantage of decentralized finance protocols and using them for illegal activities. According to Chainalysis, $23.8 billion in cryptocurrency was sent from illicit addresses in 2022. Despite a decreasing trend in 2023, ransomware continues to pose a significant threat.
“Crypto crime can affect anyone, especially considering the risks associated with large-scale money laundering and terrorist financing,” said Gintarė Košubienė, CEO and co-founder of Micapass. “The growing use of DeFi protocols for crime funding is a precedent to develop new anti-money laundering crypto compliance practices.
With over 40% of funds transferred through DeFi linked to illicit addresses, Micapass addresses the pressing issue of crypto-related crime and weak Anti-Money Laundering (AML) policies. The company plans to create a fully decentralized compliance tool with AI-driven suspicious activity alerts and support for multiple blockchains to enhance AML and KYC monitoring, particularly in the face of evolving global crypto regulations, thereby providing legitimacy to the unregulated crypto market.
“While transaction data on the blockchain is publicly accessible, bad actors complicate AML tracking by routing their transactions through intermediary services, enhancing funds movement complexity and making wallet attribution with real sanctioned individuals complex,” states Ms. Košubienė.
The changing crypto regulatory environment influences the growing demand for regtech companies – KPMG’s Pulse showed that such companies received $18.6 billion in 2022. RegTech is predicted to be the most active FinTech subsector for 2023.
“Seeing the global need for streamlined AML crypto compliance solutions, more businesses are developing mechanisms that can be easily integrated with DeFi protocols and ensure continuing AML/KYC monitoring. Micapass team will use the investment to develop a fully decentralized compliance tool with AI-based suspicious activity alerts and multichain support,” says the CEO of Micapass. ”In general, investors’ trust for the relatively young reg tech market shows the clear demand for solutions helping blockchain users to navigate the complex regulatory compliance terrain.”
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