DeFi platform projects can use an on-chain oracle and a public API to better track crypto wallets and assure regulatory compliance. Chainalysis, a blockchain analytics firm, has launched two new tools to make it easier to screen cryptocurrency wallets for sanctions compliance. An on-chain oracle is already accessible, and an API—an application programming interface that operates as communication between computers—will be released next month.

“As countries around the world continue to leverage economic sanctions in response to Russia’s invasion of Ukraine, decentralized Web3 groups like DEXs, DeFi platforms, DAOs, and dapp developers are searching for lightweight tools to help them, and their customers comply with sanctions policies,” Chainalysis said in a statement.

“Now is the opportunity for the industry to show that cryptocurrency’s intrinsic openness makes it a potent deterrent to sanctions evasion,” said Michael Gronager, Chainalysis’ co-founder and CEO.

According to the business, these technologies are accessible for cryptocurrency market players. Chainalysis has prioritized the development of these tools to provide the crypto industry with “everything they need” to conduct sanctions screening “at no cost to them,” according to Gronager.

What are the functions of these tools on DeFi Platform?

The sanctions-screening oracle from Chainalysis is a smart contract computer code that performs a set of instructions that verifies if a bitcoin wallet address is listed in a sanctions list. Chainalysis is in charge of the smart contract, which will be “frequently updated.”

The API will use the same data as the oracle to confirm whether a crypto address is on any sanctions lists. In contrast to the on-chain oracle built for DeFi projects, the API is designed for public web and mobile user interfaces.

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Concentrating on DeFi Platform

According to the business, these new tools are designed to help DeFi initiatives and DAOs, particularly scan for possibly sanctioned crypto addresses. DeFi is a catch-all name for instruments that allow non-custodial crypto asset trading, borrowing, and lending without intermediaries like banks or centralized exchanges. Decentralized autonomous organizations, or DAOs, are online communities motivated and regulated by a specific cryptocurrency.

While centralized exchanges such as Coinbase and FTX already have know-your-customer (KYC) procedures to screen for sanctioned persons, Chainalysis claims that decentralized exchanges in the DeFi realm do not.

“Many decentralized protocols and platforms that have lately gained traction do not have capabilities that allow for effective management of sanctions risk,” Chainalysis said, adding that these new tools will give these players the ability to do “basic sanctions checks.”