The Defi world is growing at an impeccable rate, with new projects coming up every other month. Primarily, decentralized finance introduction was meant to create excellent opportunities in the financial world, with the topmost solutions being banking the over 1.7 billion unbanked.
However, the investor adoption rate of Defi, even though fast, is still lagging due to scams and lacking security. Generally, the protection of investors and investment has always been a matter of significant concern.
To protect the average investor and the projects, new solutions were introduced in the Defi. These include knowing your customer, and project auditing.
Know-your-customers, KYC ensures the Defi service providers collect as much information about their customers to help curb money laundering and other financial-related issues. Project auditing involves looking into the smart contracts and checking for vulnerabilities. The combination of these services has been helping secure Defi and investors.
This guide looks at the importance of project auditing and KYC requirements in the Defi world. Later, the platform will look into one of the project’s services.
Build Trust in Defi Thus Fostering Adoption
Combining KYC and audit of upcoming and already excelling projects is very important in that it helps build trust in the Defi project and Defi space in its entirety.
The Defi world is still in its infancy, launched merely five years ago. Compared to other financial-related services like banking, Defi has a long way to go to garner complete consumer and investor trust. New projects and Defi need more investors’ confidence to thrive and earn more adoption.
The project audits often come before launch to help assure the investors that the project is trustworthy. After the audit reports are released, they are usually posted on the upcoming projects’ websites. The fact that these projects often post-audit reports for easy accessibility shows transparency in Defi. Once investors trust the project, the adoption of the project and Defi space will increase.
Auditing; Help in Securing the Project’s Codes
Another reason why auditing is necessary in the crypto world is that it helps protect upcoming project codes. Generally, all new computer codes could, from time to time, face issues with their codes.
Some projects during coding may make errors that could have a dire impact on the project’s finances and investor security. The codes are supposed to maintain security. If a code does not maintain security, hackers effortlessly steal from investors.
Sometimes smart contract errors could involve the possibility of assets being accidentally locked in the contract. In some instances, it may be impossible to recover the tokens/assets permanently, meaning losses to an average investor.
Therefore, auditing the project makes sure that the smart contract is entirely safe for the investors. No money will be lost either by accident or through scams.
KYC Companies Help Protect from Financial Fraud
Scams connected to crypto had increased so much that in just the first two months of 2018, crypto worth over $1.36 billion was stolen. However, implementing KYC procedures in the Defi makes it easy to trace people with malicious intentions.
It collects data that is enough to identify individuals using a particular project or a service. Garnering personal details about the service users helps hinder people from committing malicious acts, including scamming other users’ accounts.
Anyone intending to commit fraudulent activities will fear getting involved in such because they know they can easily be caught. As such, KYC is vital. Other importance of KYC in Defi include;
- Reduce the chances of money laundering
- Reduces the chances of scammers from participating in the token offerings, thus generally protecting Defi users from the start
- Helps Defi projects avoid legal issues connected to financial fraud, including tax and money laundering issues.
- It enables the upcoming and already existing Defi projects to avoid having poor reputations due to fraud and money laundering.
SolidProof: The Best KYC/Audit Platform
After a thorough investigation of how KYC and audit projects build trust in the crypto industry, investors need to be aware of SolidProof, the best project working on KYC and Audit.
SolidProof is a German-based project launched in 2021, with the sole intention of bringing efficiency and trust in the Defi world through auditing and KYC. On their website, the project states that it has specialized in smart contract audits, with the primary intention of identifying vulnerabilities.
Unlike many projects, Solidproof uses a combination of manual and autonomous systems. Generally, the platform focuses on giving vast details on the report, intending to help the project community feel secure. In their report, Solidproof highlights possible issues and gives recommendations on how to strengthen the weaker areas.
Furthermore, it partners with Unicrypt, which plays a significant role in the incubation and marketing of Defi projects. Even more, it posts all the audit results on its Twitter page for easy access. The platform shows a lot of commitment when it comes to auditing and protecting the Defi space.
Auditing and KYC procedures have a powerful impact on the crypto world. The core importance of the duo in Defi is the fostering of trust, which in turn translates to faster adoption.
Know your customer companies, help in protecting the average investor and the Defi projects from malicious people and related financial issues. On the other hand, auditors help ensure the smart contracts involved in a project are safe for use by the average investor.
Solid proof has both audit and KYC-related services, and as such, this is a platform that all Defi projects should use.