Ravencoin (RVN) has proposed a solution to overcome the AML/KYC risks associated with the issuance of STOs (Security Token Offerings).

The proposal on “Tags and Restricted Assets,” written by the project’s lead developer, Tron Black, aims to enable a more elegant and decentralised means of issuing digital securities tokens.

This is a major and important post from Raven developer Tron Black. This presents ideas for new asset types which can enable a more elegant & decentralized means of issuing digital securities tokens. All without smart contracts on or chain whitelists!https://t.co/hhhRT6wxXr — Project Raven / RVN / Ravencoin (@Ravencoin) February 22, 2019

The open source Ravencoin platform launched in January 2018 with the goal of enabling tokenised asset transfers on the blockchain. RVN tokens are used to create either fungible or non-fungible digital assets, and even non-asset-based tokens.

No whitelists

The team have proposed two new token types that allow for ‘restricted assets’ functionality to be used on the Ravencoin blockchain. The team think this is possible to implement without the use of “smart contracts or chain whitelists.”

Lead developer Tron Black wrote in a blog post that the “purpose of these restrictions is to limit the transferability of a token to known good actors, but without revealing the identity of the actors to anyone other than the original entity that verifies their identity.”

“Only when legally required to do so would the verifier reveal the identity,” clarified the Ravencoin developer.

Two tokens that work together

The first new token “starts with a $ and represents a completely new token type which is a restricted asset. Restricted assets only move to Tagged addresses.”

The second token “starts with a # and is a Tag. Tag tokens can only be transferred by the issuer. Tag tokens can be sent or revoked only by the Tag issuer.”

When a Tag token is sent to an address, “the meta-data will provide enough information on-chain to allow anyone (regulators) to know where the KYC/AML and PII data is stored.”

Black thinks that this protocol could allow “for fool-proof audits and perfect accountability.”

He listed two potential use cases for this type of token: a subscription-based asset and, more interestingly, a security token that complies with “regulatory rules when operating in peer-to-peer mode.”

Looking to be SEC compliant

In the proposal, the team did say that “as things stand today, the SEC has not provided clear guidance on whether a security token can operate in a peer-to-peer mode on a perfect publicly auditable decentralised ledger.”

Due to this, they decided on a conservative approach “to ensure that peer-to-peer operation is restricted to addresses that have been whitelisted or tagged and for which an entity has done KYC/AML on the address.”

“For this use case, the best practice when using restricted assets is to have a consortium of regulated entities join together to provide KYC/AML that issuers will trust.”

This is HUGE! A decentralized, cypherpunk solution to AML KYC. With Tron’s Black’s proposal, securities issuers could confirm AML/ KYC of holders WITHOUT a smart contract & WITHOUT a centralized white list. No control list and interoperable with other issuers or verifiers. ? https://t.co/IvZuMyauAJ — Bruce Fenton (@brucefenton) February 22, 2019

Popular crypto STO critic Bruce Fenton took to Twitter to say: “This is HUGE! A decentralized, cypherpunk solution to AML KYC.”

He thinks with Tron Black’s proposal, “securities issuers could confirm AML/ KYC of holders without smart contracts and without a centralised white list.”