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February 26, 2024
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Nuggets: Empowering compliance without sacrificing DeFi
Identity, payments, and compliance – all in one. Find out how Nuggets is tackling the conflict between DeFi and the regulatory frameworks of traditional finance to create forward-thinking web3 user solutions.

The emergence of decentralized networks and services carries the promise of empowering individuals with greater financial autonomy and reshaping the global economic paradigm. 

Though, as promising as this prospect may be, it also comes with a set of challenges for both users and builders. The inherent anonymity of decentralized finance (DeFi) platforms and the regulatory frameworks of traditional finance present a major conflict when interacting, which can lead to a plethora of issues, and in some cases, potentially expose vulnerabilities to malicious activities. At the same time, governmental responses to decentralized infrastructure often veer towards heavy-handed measures that can stifle innovation, compromising the positive impact that blockchain services can provide. In a nutshell – the technology we have today casts an optimisitc outlook for the future of autonomy tomorrow, but we’ve got a fair few hurdles to tackle in the process.

But, thanks to the project’s core focus on alleviating the paradoxical headbut between enhanced regulatory transparency within DeFi and anonymity and autonomy, Nuggets is already on the case.

Nuggets’ solution provides the level of verification, in conjunction with privacy and accountability, that regulators need while still allowing DeFi protocols to preserve their promise of decentralization, privacy and autonomy. So let’s dive in.

Identity, payments, and compliance – all in one

Nuggets' decentralized identity and payment wallet is a way for consumers to store their personal and payment data, privately and securely, utilizing encryption, zero-knowledge proofs (ZKPs), and blockchain to create systems of identification that can be cryptographically proven. This eradicates the need for saving auditable data in centralized honey pot silos. Consumers can verify their identity using biometrics without the need for usernames or passwords at any level. In addition, trusted compliance is encrypted to the required participants’ private keys with access to time-restricted nuggets of information - Auditable Nuggets - for regulatory and auditing purposes, without the need to keep Personal Data within their own systems.

Not only does this wrap identity, payments, and compliance tightly together, but also provides a seamless customer experience using W3C verifiable credentials to reduce hurdles, hoops, and friction – all the while increasing privacy and security. 

One of the key features of this system is the ability to demonstrate proof of ownership and control of a crypto account while tied to a digital identity, demonstrating the owner of the crypto account has passed KYC, AML and CTF - but in a manner that's private and not trackable or correlatable, vs. using a traceable NFT or other similar techniques. For this, Nuggets turned to WalletConnect’s Web3Wallet SDK to quickly establish interoperability with hundreds of wallets across web3.

"Using WalletConnect’s Web3Wallet SDK, Nuggets can easily and reliably connect with a wide range of crypto wallets, allowing our users to connect accounts with verifiable credentials that prove they have control over a wallet account and that they’ve gone through the necessary KYC, AML or CTF checks," says Alastair. “We actually did initially consider connecting to a small number of wallets independently. Ultimately, Web3Wallet’s versatility, ease of integration, and immediate connection to a wide range of wallets made it the preferred choice.”

Onboarding made simpler with WalletConnect

So, what happens when a business seeks to prove ownership of a crypto account that a user wants to use? Or they want to ensure the user behind the wallet has been through KYC or similar?  The user approves and uses WalletConnect to sign the required data, which is returned to the Nuggets platform. This is then verified and if successful, a verifiable credential is issued. 

The Nuggets identity and payment wallet offers a verified self-sovereign decentralized identity and authenticates the person, not the device” notes Alastair. “This is particularly useful in DeFi, for example. A user can use Nuggets to demonstrate their ownership of an account and link it to their identity for KYC purposes in a private and uncorrelatable manner. In some scenarios, this may be necessary from a regulatory standpoint.

So with Nuggets, you get the best of both worlds - it facilitates compliance and allows users to use their existing wallets whilst creating a frictionless private, secure and uncorrelatable experience and reducing cybercrime.

A win-win for DeFi

For Nuggets, it’s not about just offering a new product; they’re proposing a fundamental change to the way digital interactions and transactions are carried out. 

Safe, compliant, self-sovereign customer data is and must be the future,” concludes Alastair. “It’s an exciting time to tackle this enormous issue and offer a solution that benefits both users and businesses alike.

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