The Shyft Network, a platform designed to help cryptocurrency firms comply with anti-money laundering (AML) rules, has launched its main public blockchain system.
Combining elements of Ethereum and Bitcoin, the Shyft Network is an open base-layer to house decentralized identity applications, compliant cryptocurrency transactions and tools to make decentralized finance (DeFi) palatable to regulators, without compromising the latter’s open appeal.
Alongside Wednesday’s mainnet launch is the unveiling of the Shyft Federation, a diverse group of 21 entities, from core crypto development teams to large financial institutions, who will run nodes on the Shyft Network and ensure it has a decentralized architecture from the get-go.
Regulation of cryptocurrency is inescapable. The Shyft project helps crypto companies meet the identity and data sharing requirements of the Financial Action Task Force (FATF), but with the least amount of centralized trusted authority, akin to how blockchains already work.
“A lot of projects are taking a kind of progressive decentralisation approach,” Shyft co-founder Joseph Weinberg said in an interview. “But we are saying this needs to be hardened, ready for primetime, and come with really good censorship resistance across the infrastructure from day one.”
The Shyft Federation consists of 21 private Tor nodes (referring to “the onion router,” a layered system designed to protect privacy), run by companies, organizations and even a sovereign government (Weinberg wouldn’t disclose which country), performing a function similar to mining a blockchain. Named Federation members include CoinShares, BitFury, ChainSafe and Fabric Labs.
Under the hood, Shyft runs a modified version of the Ethereum Virtual Machine (EVM), a kind of software rulebook that governs the changing state of the blockchain, followed by all the nodes on the network. In the case of Shyft, a proof-of-authority consensus system is operated by the Federation of nodes, with all the relaying done inside Tor to protect against things like denial of service attacks, explained Weinberg.
Decentralized SWIFT
In legacy finance, centralized technology such as SWIFT exists to collect counterparty information and route payments. (Blockchains were not designed to require any identity information for routing payments on-chain, so this means there is no way to determine counterparty risk.)
Shyft’s Veriscope application, a system of smart contracts running on top of the network’s base fabric, creates a counterparty discovery and coordination layer for crypto finance, Weinberg said. Veriscope is designed to satisfy the data-sharing requirements of FATF’s so-called “travel rule,” but without sacrificing the core pillars of decentralization and open innovation, he said.
In addition to hosting the Veriscope travel rule solution, the now-live Shyft mainnet, will be home to a national identity system for Bermuda built with the country’s government, and also a set of smart contracts to help regulators accept and work with DeFi.
KYC and composability
The problem encountered when throwing a lot of KYC at DeFi is that it denatures all that’s interesting about it, Weinberg pointed out.
“The moment you add KYC, you break composability,” he said, referring to the idea that DeFi projects can easily build atop each other.
To solve for this, Shyft offers an on-chain KYC rules engine that can be customized so that, for example, a KYC policy from one institution can be made available across many institutions at once, or pre-defined rules can be created around particular institutional liquidity pools and users can choose to opt in, Weinberg said.
“So we can basically start to re-architect composability,” said Weinberg, adding:
“In the future there will be all these institutional pools, things like Aave Pro, and the next piece will be, how do we connect all of them together so that we can recreate that experience of transitive liquidity?”