Why RegTech is Being Disrupted by Open-Source Identity Protocols

Traditional KYC/AML is a centralized, siloed cost center. Each institution pays for the same checks, creating massive redundancy and friction.

• Cost: $50M+ annually for a top-tier bank's compliance program.
• Latency: Days to weeks for customer onboarding and transaction clearance.
• Fragmentation: No data portability, forcing re-verification at every service.

Protocols like Worldcoin, Verite, and Polygon ID decouple proof-of-personhood from service providers. Identity becomes a verifiable credential, not a stored dataset.

• Portability: One KYC attestation works across DeFi, CEXs, and dApps.
• Privacy: Zero-knowledge proofs enable verification without exposing raw PII.
• Composability: Credentials become programmable assets for on-chain access control.

Regulation becomes code. Smart contracts enforce policy, moving compliance from manual review to automated, transparent logic.

• Sanctions Screening: Oracles like Chainalysis or TRM Labs provide real-time on-chain risk scores.
• Programmable Policy: DAOs and protocols set their own KYC tiers and limits.
• Audit Trail: Immutable, transparent compliance logs reduce regulatory overhead and liability.

Every bank and exchange runs its own siloed KYC/AML stack, costing $50M+ annually for large institutions. Data is not portable, forcing users to re-verify endlessly.

• Zero-Knowledge Proofs enable reusable attestations without exposing raw data.
• Interoperable Standards like W3C Verifiable Credentials allow proofs to work across chains and institutions.
• Programmable Compliance turns static rules into dynamic, on-chain logic.

A full-stack solution for issuing and verifying ZK-based credentials, moving beyond centralized attestors like Jumio.

• User-Centric Wallets hold credentials locally, enabling selective disclosure.
• On-Chain Verifiers allow protocols like Aave or Uniswap to gate access based on proven traits.
• Schema Registry creates a shared language for credentials, fostering network effects.

Open-source protocols transform compliance from a cost center into a composable primitive that enhances user experience and unlocks new markets.

• DeFi Integration: Projects like Circle's CCTP can require credential proofs for cross-chain transfers.
• Sybil Resistance: Protocols like Gitcoin Passport and Worldcoin provide cheap, global uniqueness proofs.
• Regulatory Arbitrage: Developers can deploy the same compliant dApp across jurisdictions by swapping verification modules.

Solves the fundamental oracle problem of unique humanity at scale, a prerequisite for equitable distribution (airdrops, governance) and compliance.

• Hardware-Backed Uniqueness: Orb biometrics provide a high-assurance root credential.
• Privacy-Preserving: Uses ZK proofs; the biometric template is never stored.
• Universal Base Layer: Acts as a foundational primitive for protocols like Optimism's Citizen House to allocate resources.

A low-level protocol for making statements about anything. It's the TCP/IP for trust, enabling a decentralized graph of attestations from credit scores to DAO memberships.

• Permissionless Schemas: Anyone can define a new type of attestation (e.g., isAccreditedInvestor).
• On- & Off-Chain: Data can live on-chain for transparency or off-chain for privacy.
• Network Effects: Attestations from Coinbase or Verite become more valuable as more apps read them.

Legacy systems charge per check and take days. The new stack charges per program and settles in seconds.

• Legacy: Thomson Reuters World-Check ($100k+/year), 3-5 day onboarding, $5-10 per screening.
• On-Chain: ~$0.01 per ZK proof verification, <1 minute onboarding, revenue share models for attestors.
• Winner: Developers and users, not middlemen. Compliance becomes a feature, not a barrier.

Centralized KYC providers create siloed, non-portable data and single points of failure. They charge $50-$150 per verification and take days to weeks for onboarding, killing user experience and innovation.

• Portable Identity: User credentials are self-sovereign and reusable across protocols (e.g., Worldcoin's World ID, Veramo).
• Cost Collapse: On-chain verification reduces marginal cost to <$1, shifting from per-check fees to protocol gas costs.

Manual, periodic audits are slow and opaque. Open-source frameworks like Hyperledger Aries and Ethereum Attestation Service (EAS) enable real-time, machine-readable proof of compliance.

• Programmable Rules: Enforce jurisdiction-specific rules (e.g., sanctions, accreditation) via smart contracts or zero-knowledge proofs (zkSNARKs).
• Audit Trail: Immutable, timestamped attestations create a cryptographically verifiable history for regulators, reducing audit overhead by ~70%.

Traditional finance uses credit scores; DeFi has none, leading to rampant sybil attacks and inefficient capital allocation. Protocols like Gitcoin Passport, BrightID, and Sismo create sybil-resistant, aggregated reputation graphs.

• Capital Efficiency: Lending protocols can offer better rates for proven identities, unlocking $100B+ in undercollateralized lending.
• Governance Integrity: DAOs can filter out bots, making $10B+ in treasury governance more legitimate and attack-resistant.

Every fintech app rebuilds its own identity stack. Open standards (W3C Verifiable Credentials, DIDComm) allow a user's credential from Coinbase to be used to verify a loan on Aave or trade on a DEX.

• Network Effects: Compliance becomes a shared utility, similar to Ethereum for settlement or Chainlink for oracles.
• Developer Velocity: Teams integrate compliance in hours, not months, by plugging into protocols like Disco.xyz or Spruce ID.

Regulators demand transparency; users demand privacy. Zero-knowledge proofs (zk-proofs) and selective disclosure protocols (zkSNARKs, zkML) resolve this. A user can prove they are over 18 and not on a sanctions list without revealing their passport number or name.

• Regulatory Acceptance: Projects like Polygon ID and Aztec are pioneering this with real-world pilots.
• User Adoption: Privacy features increase onboarding conversion by 3-5x compared to invasive KYC.

Today, compliance is a $100B+ industry of rent extraction. Open-source protocols flip the model: verified user bases become valuable, low-friction networks that drive business growth.

• New Business Models: Monetize via protocol fees (like Uniswap), not per-check rent. Circle's Verite is betting on this.
• Strategic Advantage: The first CeFi/DeFi hybrids to master this (Robinhood, PayPal) will capture the next wave of users by making finance both compliant and seamless.