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Leading U.S. crypto firms have joined forces to build a platform called TRUST to comply with travel rule requirements and anti-money laundering (AML) rules.
The Travel Rule Universal Solution Technology (TRUST) will allow participating exchanges to securely share information on the senders and beneficiaries of crypto transactions in compliance with Financial Action Task Force (FATF) recommendations.
“Our core goal in designing TRUST was to achieve top-tier compliance with the Travel Rule, while fully honouring consumer expectations over how their information is handled,” the crypto firms said.
The participating exchanges are Anchorage, Avanti, Bitgo, bitFlyer, Bittrex, BlockFi, Circle, Coinbase, Fidelity, Gemini, Kraken, Paxos, Robinhood, Standard Custody & Trust, Symbridge, TradeStation, Zero Hash, and Zodia.
TRUST at the heart of crypto trading
The anonymity of crypto trading has always raised concerns that digital assets could be used to circumvent the traditional financial infrastructure and could be used for illicit finance.
These concerns were only aggravated after the increasing number of cyber-attacks, which often use cryptocurrencies as a payment method for ransom.
Although recent Europol research found that crypto is, proportionally, used less to launder illicit funds than the traditional financial system, building trust is often viewed as a key precondition for mainstream adoption.
This is exactly what the crypto exchanges are now planning to achieve by setting up the TRUST platform.
“The solution is named TRUST because that’s what we seek to instill in our customers when they use our products and services,” Paxos said in a press release.
All TRUST members must meet core AML, security, and privacy requirements before joining the platform, Coinbase stressed.
AML v anonymity
Decentralisation and anonymity have been key components, and significant drivers for growth, in the crypto space. This has helped the crypto market surge in recent years.
Last November, the market cap of cryptocurrencies hit the $3trn value, exceeding the total number of dollars in circulation ($2.10trn). As a result, the crypto market has grown too big for regulators to ignore.
However, the incompatibility of anonymity with the fight against money laundering and terrorism financing has become a more pressing issue.
The crypto exchanges participating in TRUST are now trying to strike the right balance between data privacy and AML rules by establishing a number of data protection and security safeguards.
TRUST members will share the information only between the two exchanges participating in a crypto transaction. User data will not be stored in a central database, where it could be targeted by an attacker or misused by a third party.
“The required information is only directly sent from one TRUST member to another, through end-to-end encrypted channels, and the receiver is required to safeguard it,” the announcement said.
TRUST also includes a mechanism for the receiving exchange to prove that it is the owner of the receiving crypto address before customer information is sent, to confirm that the right information is sent to the right exchange.
According to participants: “The launch of TRUST resoundingly demonstrates that top-tier compliance can go hand-in-hand with a core industry value–robust protection of customer privacy and security.”
Just the start
TRUST is a technology solution that works with existing analytics firms in the space, and will work to become interoperable over time with other proposed solutions, Nisa Amoils, managing partner at venture capital firm A100x, and Board of Global DCA, a self-regulatory organization for the digital asset and crypto industry, told VIXIO.
“Self-regulatory organizations have been missing in this sector and are needed given the lack of regulatory clarity, especially across jurisdictions," she stressed.
At the moment, the partnership includes U.S. licensed crypto exchanges, but the firms are planning to expand the collaboration to other global jurisdictions later this year.
Given the leaders in the sector have already signed up, other jurisdictions should follow, Amolis stressed.
TRUST is already pursuing this with the service currently in "build" phase in Canada, Singapore and Germany, she added.
“The more countries and parties that sign on, the more this can be seen as a stamp of trust if you are a participant."
Although the initiative is a “start,” there is still “a long way to go,” cautioned Jim Preissler, managing partner, Tritaurian Capital.
“It is good to see crypto firms taking it upon themselves to make an effort to abide by the bare minimum efforts for compliance,” he told VIXIO.
One stand out in the new venture is the notable absence of Binance which has made great noises in recent months with its plans to set up a centralized headquarters and become a fully compliant crypto exchange.
Although the largest market player is not among the participants, an industry source told VIXIO it could be a matter of time before Binance too joins the collaboration.
