PLAY! Clubs special content edition - Clubs KYC

December 1, 2023

Hi, Clubbers! You may ask yourself why we are here again with more news and updates. It is very simple indeed. The reason is that a lot is going on with Clubs, and we want to take some space to inform our community properly and timely. Hence, special topics like implementing a KYC will be gently introduced in a special content edition.

Before jumping into explaining KYC, it is important to know that the KYC process will be implemented on the Clubs’ funds page. The product team is doing its best to roll this feature out as the withdrawal funds feature will be enabled for verified users only. We are eager to implement KYC as it will unlock the income generation for creators.

What is eKYC?

In short, the Know Your Client (KYC) is a standard identification process that allows institutions to confirm and validate a client's identity.  An “e” is added to KYC (eKYC) referring to this process being completed electronically/digitally. A standard eKYC process occurs during the onboarding, where users are asked for the following:

  • Full name
  • Date of birth
  • Address
  • Identification number

The required data is verified with a photo of a valid government-issued ID card.

The KYC rule is an ethical requirement for those in the investment/security industry dealing with customers during service providing, complying with Anti-Money Laundering (AML) and Countering Financing of Terrorism (CFT) regulations.

The main objective of the eKYC process is to lower the risk of fraudulent and suspicious transactions, ensuring a safe and transparent environment.

How is Clubs KYC an opportunity for creators?

As Clubs uses the monetization (yield-based) feature, which will allow creators to withdraw funds, the founder team, along with the governance directors, decided to implement an eKYC process to signal Clubs’ safety. Therefore, Clubs KYC entails a range of opportunities for creators. For example, supporters will feel more willing to contribute to a specific Club, knowing that the creator behind the DAO went through a security measure. Also, by verifying users’ identity, there will be more quality Clubs as ill-minded people will be discouraged from setting up a Club.

The eKYC is the first step of the web3 governance policy, which the whole team is restlessly working on. This policy is a set of procedures and guidelines reflected on features and processes that enable a fair treatment of Clubs’ stakeholders, ecosystem adoption, and pre-regulatory compliance. The next steps are implementing some governance features that allow creators to manage their Club structure in the simplest ways. The web3 governance policy was developed to protect the vision we value most: “Enable a decentralized economy for creators”.

Several elements were considered at the moment to implement the eKYC. These are reflected in the below sections.

How exactly can a creator use Clubs and abuse its usage?

Suppose there is a creator who is a “bad person” that we will call Bad Bob. Bad Bob can create a Club with a YouTube channel created 3 minutes ago with a false email account and a disposable SIM card for the number. Bad Bob has colossal wealth that comes from selling drugs. He has been buying ETH in some tier-3 exchanges. Bad Bob set up expensive memberships and bought from himself with his other false account, Bad Sarah. After some repetitive purchases, Bad Bob's wealth is legitimized through the use of Clubs, as now, when he goes to a financial institution and opens a bank account, he can state that the origination of funds is “supporting through memberships of personal creative projects”. The money is clean.

The above example is a typical procedure of money laundry. There can be more illustrations of Bad Bobs, but you get the point.

Is there any specific regulation to comply with?

For crypto-based financial services, KYC is not mandatory. However, some progress was made toward a comprehensive solution for implementing a KYC procedure into the blockchain financial space. Some are listed below:

  • In the US, The Financial Crimes Enforcement Network (FinCEN) proposed that cryptocurrency and digital asset market participants submit, maintain, and verify customers' identities. This proposal would classify certain cryptocurrencies as monetary instruments, subjecting them to KYC requirements (2021).
  • In Japan, it was introduced crypto-specific regulations through the Payment Services Act, making different types of tokens subject to different types of regulation. Under the Amended Act, stablecoins are considered an electronic payment instrument. Therefore, it has to comply with the establishment of registration procedures and code of conduct imposed on Electronic Payment Instruments Exchange Service Providers and Electronic Payments Handling Service Providers, which include a KYC procedure (2023).

In addition to the blockchain regulatory landscape, The Japan Federation of Bar Associations has submitted an opinion to the Financial Services Agency that KYC of users should be mandatory for services that allow users to withdraw their earnings. Therefore, the founders believe that the same regulation will be applied to the Web3 world in the future. In other words, the founder team was also thinking ahead to the current regulations when they decided to implement the eKYC.

Does the eKYC affect the nature of crypto spaces regarding anonymity and decentralization?

Let’s split the answer into two to have more space to elaborate a complete answer. However, a short answer will be no. Anonymity and decentralization will not be jeopardized by implementing an eKYC process.

To start, anonymity will not be compromised, as the eKYC is managed by a third-party provider whose identity validation processes are automatic, lowering to the minimum the human intervention. Also, the creator’s identity and personal information will be treated as aggregated data without any link to any information uploaded to the Clubs’ interference pages.

On the other hand, decentralization (or, to use a more explanatory term, permissionless) will also not be threatened as going through the eKYC will be only 3 to 4 minutes more before using the complete set of features of Clubs with a 100% of approved ratio, unless you are a Politically Exposed Person (PEP), which, let’s face it, the vast majority of creators are not.

How will my information be treated and stored?

As mentioned before, a third-party provider will oversee the eKYC process. However, its selection was based on its product scalability, UI, and, most importantly, data management.

The third party stores all the data within Microsoft Azure (Cloud provider), and it is GDPR (data protection) and ISO27001 (information security) compliant.

Hence, rest assured that all the information provided during the eKYC process is protected by a supranational government body and global certification company.

Some final words

To conclude, the eKYC is a 3 to 4-minute process that will solidify the safety of Clubs’ users without interference with the precepts of the blockchain space. A third-party provider will manage it, taking special care of the data collected. The Dev Protocol team is eager to deploy this feature as it is a milestone on the internal roadmap, and we are very happy to have users like you being part of the achievements.

Stay tuned for more updates in the PLAY! Clubs community!

The DEV Protocol team

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