The problem: the digital asset world is complex, fluid, vast, and not safe for normal user

The problem of financial compliance for virtual assets is a complex and evolving challenge in the digital age. Virtual assets, including cryptocurrencies, tokens, stablecoins, and other digital representations of value, present risks of money laundering, financial fraud, and terrorist financing that persist as illicit actors become increasingly sophisticated. The anonymous and decentralized nature of virtual assets makes it challenging to enforce regulatory measures and ensure regulatory transparency in transactions. Therefore, this poses significant regulatory and security challenges, as malicious actors exploit these digital assets for their illicit activities. Additionally, the global nature of virtual assets and their ability to transcend traditional physical and regulatory borders further complicates the landscape regulators, law enforcement, valid businesses, and regular individuals find themselves in requiring innovative solutions to address not only financial compliance challenges while also managing the restrictions placed on businesses and regulators by data privacy laws.

The limitations of current technologies make things even harder

While existing technologies provide some level of financial compliance for virtual assets, they have several severe limitations that hinder their effectiveness. Traditional compliance controls used by centralized financial institutions are often ill-equipped to handle the unique challenges posed by decentralized virtual assets simply because they are designed for a “simpler”, centralized world. The anonymous and pseudonymous nature of transactions on blockchain-based networks makes it difficult to enforce, for example, KYC requirements and ensure meeting regulatory enforcement and reporting requirements. Moreover, existing compliance solutions often lack interoperability, making it challenging to establish a unified and comprehensive view and processes for regulatory compliance across different virtual asset platforms, let alone different networks. Additionally, the lack of privacy protection and private data hoarding in most existing solutions raises concerns about the security and confidentiality of sensitive compliance data, especially in cross-border enforcement and reporting actions.

Why use Sealance’s compliant digital asset platform

The Sealance Compliant Asset platform offers a powerful and innovative solution to the problem of financial compliance for virtual assets. By leveraging blockchain-native compliance mechanisms, Sealance provides a comprehensive framework for ensuring regulatory compliance, risk management, and transaction reporting for various types of virtual assets. The platform combines robust regulatory compliance actions with privacy protection, enabling the creation of compliant versions of virtual assets that enforce jurisdictional policies while being privacy-preserving. Sealance’s technology preserves the economic value and technological capabilities of digital assets while ensuring that sensitive information is selectively visible only to authorized law enforcement authorities. This enhances the security and integrity of virtual asset transactions while maintaining privacy for legitimate users. Moreover, the platform’s compatibility with different types of virtual assets such as fungible and non-fungible digital assets makes it a versatile solution for the evolving landscape of digital finance.

The ability to automate compliance across a virtually unlimited number of assets on a network also generates significant cost savings since manual compliance and reconciliation processes are no longer necessary, not only for individual organizations but across all participants in digital assets

What is the Sealance compliant digital asset platform

The Sealance platform revolutionizes financial compliance for virtual assets by augmenting blockchains with additional information about actors’ identities and funds’ provenance. This innovative approach enables the platform to address the challenges posed by the decentralized nature of virtual assets. By attaching Compliance-Relevant Auxiliary Information (CRAI) to transactions involving virtual assets in encrypted form, Sealance ensures that critical compliance data, such as user identities, credentials, transaction history, and fund provenance, remains secure and tamper-proof. The platform’s software developer kit (SDK) incorporates state-of-the-art cryptographic protocols that automatically enforce compliance policies assigned to both digital assets — what holders can and cannot do with such a digital asset — and digital asset holders — what individuals can and cannot hold and/or trade such assets. It also updates CRAI during the recording of transactions on the blockchain. This seamless integration allows for real-time compliance monitoring and reporting, enhancing transparency and accountability in the virtual asset ecosystem.

Sealance platform participants

The Sealance platform brings together various participants involved in the virtual asset ecosystem, creating a collaborative and secure financial environment:

• Virtual Asset Service Providers (VASPs), including cryptocurrency exchanges, digital wallet providers, token issuers, and other intermediaries, play a crucial role in facilitating virtual asset transactions. These VASPs are subject to regulatory requirements and are responsible for implementing compliance measures.
• Regulators and law enforcement authorities are essential participants in defining and enforcing compliance policies to be enforced by VASPs, ensuring that they align with the laws, rules, and regulations of their respective jurisdictions.
• Financial institutions, such as banks and other entities, are key participants as they can establish their risk tolerance and define compliance policies within their organizations. Individual users and organizations engaging in virtual asset transactions also benefit from the enhanced security, privacy, and compliance features provided by the Sealance platform.

In addition to the mentioned participants, the Sealance platform also caters to:

• Non-finance-focused commercial customers such as game developers or large e-commerce brands. These customers have their own unique compliance needs, especially when integrating virtual assets into their platforms or conducting transactions involving virtual assets. Game developers for example may require compliance mechanisms such as copyright enforcement to ensure that in-game virtual currencies or assets adhere to regulatory requirements and can be seamlessly integrated into their and other developers’ games. Furthermore, large e-commerce brands may need compliance features to securely accept virtual assets as payment, or issue tradeable loyalty points to their fans/customers. The Sealance platform also addresses these needs by providing comprehensive, yet customizable compliance solutions tailored to the requirements of non-finance businesses.
• Regular platform users, including individual investors and traders, also have compliance needs when engaging in virtual asset transactions. They can rely on the Sealance platform to ensure that their transactions are conducted in a compliant manner, adhering to Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. They benefit from the platform’s enhanced security and privacy features, which protect their sensitive information and assure that their transactions are conducted within a trusted and compliant environment.

Overall, the Sealance platform addresses the diverse compliance needs of a broad range of ecosystem participants, enhances their security and privacy, and enables a more secure and compliant virtual asset ecosystem.

How the Sealance compliant asset platform is used

The Sealance platform allows for a wide range of use cases to address digital asset compliance challenges. It enables the creation of compliant pools of sealed assets, where every transaction involving assets is cryptographically guaranteed to be compliant with specific asset policies. By utilizing sealed assets, participants can ensure that their transactions adhere to regulatory requirements, undergo proper identity verification, and are subject to transaction monitoring and reporting. The platform supports the controlled ingress and egress of assets, ensuring that user funds are not exposed to fraud or criminal activity. Sealance’s technology is compatible with both custodial and self-hosted wallets, providing flexibility for users to transact securely while maintaining control over their assets. Additionally, the platform accommodates the growing trend of decentralized finance (DeFi) platforms such as Uniswap, which utilize complex smart contracts and eliminate the need for certain financial intermediaries. This enables users to leverage the benefits of DeFi while maintaining regulatory compliance.

General process flow overview

The Sealance platform follows a well-defined process flow to ensure regulatory compliance and enhance the security of digital asset transactions. The process involves the (potential) digital asset holders obtaining compliance-relevant credentials, also known as Compliance-Relevant Auxiliary Information (CRAI), from known identity, AML, or other regulatory compliance validation providers verified and registered with with platform. A holder’s CRAI is then attached to digital asset transactions in cryptographically protected forms — encrypted compliance information, and privacy-preserving compliance assertions about digital asset holders that can be independently verified, for example on a public blockchain. This information includes user identities, credentials, transaction history, and fund provenance.

Digital Asset compliance policies, established by regulators, self-regulating bodies, or financial institutions, define the rules for compliant transactions, approvals, report generation, and access control. Sealed assets, which are either wrapped versions of existing digital assets, or digital assets with native compliance policies, are directly attached to compliance policies. This allows the CRAI attached to the digital asset transactions to be directly evaluated by the digital asset against its compliance policies. After the digital asset has evaluated the CRAI against its policies it will either permit or disallow the submitted transaction.

Sealance’s software developer kit (SDK) implements the necessary cryptographic protocols to create and manage privacy-preserving CRAI, create and manage compliance credentials, and create digital asset transactions. Furthermore, Sealance’s technology which is natively built into digital assets enforces policies and automatically updates CRAI for each asset during the recording of submitted transactions on the blockchain. Dashboards and forensic tools will also be available to policy-authorized institutions, regulators, and law enforcement authorities, providing access to aggregate statistics, audits, and investigative data. This comprehensive digital asset process flow and monitoring ensures security, privacy, accountability, and compliance in the digital asset ecosystem.