Fractal ID in Dialogue with CrowdSwap: Securing the Future of DEXs with Decentralized Identity

As DEXs continue to gain traction and reshape the financial landscape, where do decentralized identity solutions fit in? For platforms like CrowdSwap, how does a partnership with Fractal ID pave the way for increased user control?

In the second installment of the Fractal ID interview series, we spoke with the Co-Founder of CrowdSwap — Christian Mülder. The conversation explores the relevance of decentralized identity solutions — ranging from KYC checks to human liveness — to secure transactions, protect privacy, and establish trust in the world of DEXs. Christian also dives into the need to resolve the “trade-off between platform security & user anonymity” while shedding light on the pertinence of identity interoperability to drive user adoption.

One of the most powerful USPs of decentralized exchanges, as opposed to centralized platforms, is heightened anonymity. However, despite continuous advancements in swapping experiences within the DEX space, challenges persist. Amidst increased regulatory scrutiny, the need of the hour is to attract new and maintain existing users. The ability to verify each user that contributes to liquidity pools will change the game.

Are decentralized identity systems the obvious solution?

Accurate, compliant, flexible, and scalable KYC providers are pertinent

Fractal ID: Could you please introduce CrowdSwap and what makes it different from other DEXs in the space?

Christian: CrowdSwap, as a decentralized exchange, is a one-stop shop for DeFi enthusiasts that aims to decrease the barriers to profit from DeFi opportunities. With our automation and optimization approach, users can easily take advantage of the best opportunities without the hassle of knowing every detail about the necessary steps. The CrowdSwap dApp wraps all steps into a minimum number of transactions. Users benefit from spending less time searching for the best prices, cross-chain bridges, and adding liquidity to the correct places. Plus, we provide a wide range of services for other projects to launch in the DeFi space.

Fractal ID: The concept of user verification can inhibit crypto users who value anonymity. How do we resolve that vis-a-vis platform security? Can a DEX go without KYC/AML?

Christian: There is yet to be a definitive answer on how to resolve this trade-off between platform security and user anonymity. A DEX may not be able to verify the identity or legitimacy of its users or their transactions. This may expose the DEX and its users to potential fraud, scams, phishing, hacking, or other malicious attacks. While a DEX technically can provide users security without having KYC/AML procedures, it may also face some trade-offs and challenges in doing so. Some possible solutions or alternatives for a DEX to balance security and compliance are implementing selective or optional KYC/AML procedures and leveraging decentralized identity (DID) solutions.

Fractal ID: For our readers, please describe to which length you’ve integrated identity verification checks on your platform.

Christian: CrowdSwap is a DEX that respects users willing to be anonymous. Our dApp doesn’t ask for identity verification for swaps and opportunity investing. However, in our launchpad feature, which is a tool for token pre-sale, users need to pass the KYC procedure, which is mandatory for all investors. KYC levels and details can vary for projects that want to launch their tokens through CrowdSwap.

Fractal ID: You offer a broad range of DeFi opportunities. What are the grounds for a suspicious transaction on your platform that indicates potential fraudulent activity?

Christian: There are different types of suspicious transactions like phishing and impersonation, high-value transactions in a short period, and virtual fund transfers to low-regulated dominions that indicate potential fraudulent activity. Investors should always do their own research, check smart contracts, and use reputable platforms and wallets to protect themselves from DeFi fraud.

Fractal ID: You use Fractal ID to KYC users that participate in Crowd Sale. What are the main considerations to keep in mind when choosing a KYC provider?

Christian: A KYC service can bridge the gap between privacy and compliance by providing a secure and efficient way to verify customers’ identities and backgrounds while respecting their data protection rights and preferences. User onboarding is also very important for KYC providers, as it is the first step to establishing a trusted relationship with your customers and ensuring compliance with relevant regulations. A good user onboarding process should be simple, cost-effective, fast, accurate, secure, compliant, flexible, and scalable. Choosing a KYC provider offering these high-quality services can improve customer satisfaction, retention, and loyalty while reducing operational costs and compliance risks.

Fractal ID: CrowdSwap is one of Fractal ID’s clients with access to our most innovative identity solution — the DID registry. How has this integration impacted verification time, costs, and onboarding of users overall?

Christian: Fractal ID’s DID registry can reduce the verification time for KYC providers, as we can use the existing digital identities of our users instead of requesting and verifying new documents or information. It can lower the costs for KYC providers, as we can leverage the shared infrastructure and network of the DID registry instead of building and maintaining our own identity systems. It can also improve the onboarding of users for KYC providers, as we can offer a more user-friendly and convenient experience for our customers, who can control their own digital identities and consent to share them with the KYC providers. Therefore, Fractal ID’s DID registry can positively impact verification time, costs, and onboarding of users for KYC providers, by providing a decentralized, secure, and interoperable solution for digital identity management.

Fractal ID: You’re currently using two DID registries Fractal ID provided: one is on Polygon, and the other one is on BNB Smart Chain. Please explain how exactly you are leveraging both registries. Why is identity interoperability relevant to DEXs like yours?

Christian: Identity interoperability is relevant to DEXs because it can enable cross-chain tradingself-sovereign identity, and regulatory compliance. Identity interoperability can allow users to trade assets across different blockchain networks without relying on centralized intermediaries or custodians. Also, it reduces the risks of fraud, money laundering, and other illegal activities, as well as compliance costs.

Fractal ID: With the EU’s MiCA legislation now coming into force, the next iteration is over the licensing of DeFi smart contract codes. How will such measures impact DEXs like CrowdSwap?

Christian: DeFi smart contract codes are currently not regulated by the MiCA legislation, as they do not fall under the definition of crypto-asset service providers or issuers. Licensing DeFi smart contract codes could significantly impact DEXs like CrowdSwap, which are platforms that allow users to trade crypto-assets directly with each other using DeFi smart contracts. Some of the possible impacts are increased compliance costs and barriers, reduced decentralization and autonomy, and enhanced user trust. This could positively and negatively impact DEXs like CrowdSwap, depending on how the regulation is designed and implemented.

Fractal ID: What is next for CrowdSwap?

Christian: CrowdSwap is constantly working on improving its services and offering new opportunities to its users. We are also planning to release a lot of new features in the future, such as the VIP program, limit order (set a target price for your swap), and a lot of improvements in our swap and cross-chain features which will lead to better user experience and add more use cases to our CROWD token.

Thank you for your time, Christian. It was great speaking with you!

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