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KYC/AML for decentralized exchanges (DEXs) – real-world application vs. theory
Been diving into the upcoming MiCA regulations and the evolving stance on crypto assets, particularly around KYC/AML obligations. It's clear that centralized exchanges (CEXs) are very much in scope, and for good reason. My question is, how are firms, especially those looking to build or integrate with DEXs, practically squaring the circle on KYC/AML? The whole point of a DEX is often the pseudonymity and non-custodial nature. Are we expecting some kind of front-end KYC layer before wallet connection, or are there other compliance mechanisms being explored that maintain the decentralized ethos while meeting regulatory requirements? It feels like a significant hurdle.
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This is a really interesting point, especially as regulatory bodies try to fit decentralized tech into existing frameworks. I wonder if the focus for DEXs will eventually shift more towards the off-ramps and on-ramps to fiat, rather than trying to KYC every single participant on the chain itself.