The key to getting more institutions onchain: Rethinking KYC
a16z crypto examines how reusable KYC could lower friction for institutions entering on‑chain finance. The report finds that blockchain‑specific KYC tools and standards can cut duplicate verification costs while preserving regulatory compliance.
핵심 내용
- Reusable KYC could reduce onboarding costs by up to 50% for banks entering DeFi.
- Zero‑knowledge proofs and verifiable credentials enable privacy‑preserving identity reuse.
- Regulators need clear rules on when third‑party KYC data can be relied upon.
- Current Travel Rule requirements remain a hurdle for cross‑chain transactions.
- Industry pilots like Fireblocks OTL and Privado ID illustrate practical pathways.
- Initial verification cost
- ≈$1–$2
- Travel Rule threshold
- ≈$3,000
- SWIFT registry size
- ≈8,000 instituti
The problem of duplicated KYC
Traditional "Know Your Customer" checks are a major source of friction for banks and broker‑dealers that want to bring tokenized products on‑chain. Each institution must repeat identity verification even when a user has already been vetted elsewhere, inflating costs and slowing liquidity. a16z crypto estimates that this redundancy adds significant operational overhead and creates privacy risks as personal data is stored in multiple siloed databases.
Why reusable KYC matters
The report argues that the core question is whether a bank’s KYC obligations apply only to its direct customers, not to every participant in the underlying blockchain settlement layer. If so, a verified identity could be "portable" across protocols, similar to how SWIFT’s KYC Registry lets banks share compliance data. This "ecosystem of trust" would let institutions rely on third‑party checks, provided legal safeguards are met.
Emerging technical solutions
a16z crypto highlights several blockchain‑native tools that make identity reuse feasible. Zero‑knowledge proofs and verifiable credentials allow users to prove compliance without exposing raw PII. Platforms such as Fireblocks' Open Transaction Layer, Privado ID (formerly Polygon ID), and SpruceID create shared standards so that once a regulated entity verifies a user, other participants can accept that proof with only a lightweight liveness check. The cost of an initial verification is reported at ≈$1–$2, while secondary checks are markedly cheaper.
Regulatory caveats
Despite the technical promise, the report notes that U.S. regulators still require "immediate access" to underlying KYC data, a condition that clashes with privacy‑preserving designs. The Financial Action Task Force permits reliance on third parties only if the provider is itself regulated, the institution can retrieve data on demand, and ultimate liability remains with the relying bank. Many crypto firms do not meet the "regulated institution" definition, limiting formal reliance relationships. Additionally, the Travel Rule—requiring transmission of sender and recipient details for transfers above ≈$3,000—adds another compliance layer that must be addressed separately for on‑chain flows.
Implications for readers
For institutional investors and fintech builders, the report suggests that adopting reusable KYC frameworks could halve onboarding expenses and reduce user friction, accelerating DeFi adoption. However, firms must stay attuned to evolving Treasury guidance and ensure that any third‑party provider satisfies AML/KYC supervision requirements. In practice, pilots like Fireblocks OTL and Privado ID demonstrate that a hybrid approach—combining regulated verification with cryptographic privacy—may become the industry standard as regulators catch up.