Reported by JPMorgan Chase

The Kinexys “Project EPIC” whitepaper focuses heavily on integrating privacy-preserving Know Your Customer (KYC) and Anti-Money Laundering (AML) processes into blockchain-based financial systems. It highlights how traditional KYC processes, often labor-intensive and redundant, can be streamlined using decentralized identifiers (DIDs) and verifiable credentials (VCs), enabling seamless identity verification across multiple platforms while maintaining strict privacy standards.

A significant challenge addressed is the secure handling of personally identifiable information (PII). The proposed framework allows for attestations of identity attributes without revealing underlying data, utilizing advanced technologies like Zero-Knowledge Proofs (ZKPs) and Fully Homomorphic Encryption (FHE). These approaches ensure compliance with regulatory requirements while safeguarding investor confidentiality.

The proof of concept demonstrated how reusable digital identities could optimize investor onboarding and AML/KYC verification, drastically reducing duplicative efforts. For example, investors could share identity attestations issued by trusted entities across various fund managers, eliminating repetitive document submission and verification processes.

Kinexys also emphasizes privacy-preserving compliance in secondary markets for tokenized assets. By implementing privacy tools such as stealth addresses and encrypted on-chain claims, the framework enables secure and anonymous trading of tokenized financial products, ensuring that sensitive transaction details remain confidential.

The report explores practical applications of these technologies, such as encrypted fund subscriptions and secure transaction validation, through collaborations with industry participants. The findings highlight reduced compliance costs, improved data accuracy, and enhanced user experiences as critical benefits.

Challenges remain, particularly in achieving industry consensus on standards for digital identity and privacy. The report stresses the importance of aligning these solutions with existing regulatory frameworks while fostering trust among institutions, fund managers, and investors.

Kinexys envisions a network of trusted participants, incentivized to adopt decentralized identity solutions, as the backbone of tokenized finance. Such networks would enhance interoperability, scalability, and privacy while providing an economically viable model for adoption.

Ultimately, the whitepaper presents a roadmap for integrating KYC/AML into blockchain ecosystems, emphasizing collaboration and innovation to overcome current limitations. It calls for a unified approach to drive institutional adoption and unlock the full potential of tokenized finance.

Read full report: https://www.jpmorgan.com/kinexys/documents/JPMC-Kinexys-Project-Epic-Whitepaper-2024.pdf