Exchange CEO – The Lack of KYC and AML is BRC-20’s Biggest Risk

The OKX CEO, with Twitter handle Star, has said that the most significant risk for the BRC-20 decentralized exchange (DEX) will be the risk of compliance. According to Star, that risk will border around the DEX accepting deposits without any KYC or AML control.

Because bitcoin network don’t support smart contracts, my understanding is the brc20 DEX actually ask users deposit tokens to a centralized wallet and swap them,then sent to users’ wallets. I think the model’s biggest risk is compliance risk which is the centralized wallet… https://t.co/dJfrutTMqo

— Star (@star_okx) May 28, 2023

Star observed that the BRC-20 DEX does not support Smart Contracts. Instead, the protocol requires users to deposit crypto tokens to a centralized wallet before swapping. After which, it sends the tokens to users’ wallets.

The BRC-20 team, through its official Twitter handle, appreciated Star for his observation. The team explained that its operational model is the same as what is obtainable with centralized exchanges. It also acknowledged the need to implement KYC to promote trust. The team tweeted;

“Indeed, Bitcoin doesn’t support smart contracts. We use the same method a central exchange uses to process withdrawals and deposits through an API that controls the hot wallet. A KYC is indeed something we should do to promote trust.”

BRC-20 is an acronym for Bitcoin Request for Comment 20. It is a newly launched token standard on the Bitcoin network powered by Bitcoin’s Taproot upgrade. The recently launched protocol enables the inscription of Ordinals. Users consider The BRC-20 as Bitcoin’s version of the ERC-20 token standard on the Ethereum network.

Although BRC-20 tokens use ordinals, not all ordinals are BRC-20. Hence, the number of BRC-20 tokens that currently exist is small compared to the millions of ordinals available on the Bitcoin network.

Earlier today, the BRC-20 team announced that users can now have their AirDrop eligibility using OG wallets. According to the team, that is the only category of wallets currently registered on the protocol. BRC-20 is yet to register ALPHA and Zealy members.

The team also requested that users submit only wallet addresses used to make purchases during the IDO.

Source