Compliance

YieldCoin, as a Chainlink-native, cross-chain stablecoin yield optimizer, prioritizes security, transparency, and regulatory alignment to enable safe, scalable access to optimal yields. Built on the Chainlink Runtime Environment (CRE) and integrating the Automated Compliance Engine (ACE), YieldCoin incorporates built-in compliance hooks for KYC/AML, sanctions screening, and policy enforcement. This ensures permissionless access for retail users while providing optional compliant forks for institutions, DAOs, and fintech integrations requiring stricter oversight.

Our compliance framework leverages Chainlink's decentralized infrastructure to maintain trustlessness and capital efficiency, without compromising on DeFi's core principles. All compliance processes are automated, on-chain verifiable, and designed for minimal friction, using privacy-preserving techniques like fuzzy extractors for sybil resistance.

Key Compliance Features

• Automated KYC/AML Integration: Offchain identity verification via partners like Sumsub, issuing reusable Cross-Chain Identity (CCID) proofs that are stored on-chain for seamless cross-chain compliance.

• Policy Enforcement: Chainlink ACE's Policy Manager handles pre-transaction eligibility checks, including sanctions, jurisdiction, geo-restrictions, and wallet risk scoring.

• Transaction Monitoring and Reporting: Continuous monitoring powered by CRE for anomaly detection, with automated reporting to tools like Hummingbird for regulatory filings, audit trails, and partner referrals.

• Risk Scoring: Integration with external oracles (e.g., TRM-like services via CRE) for wallet risk assessment, ensuring only compliant entities interact with institutional vaults.

• Modular and Future-Proof: Compliance is optional and composable—retail users can deposit permissionlessly, while institutions enable ACE hooks for regulated access. Future expansions include fuzzy extractors for privacy-enhanced KYC and full CCIP compatibility for cross-chain policy propagation.

• Transparency and Security: All APYs are net-of-fee and real-time verified via CRE. Compliance data is immutable and auditable, with no admin keys able to override policies or steal funds (only EMERGENCY_PAUSER for safety halts).

How Compliance Works in YieldCoin

YieldCoin's compliance layer operates through a hybrid onchain/offchain model, powered by Chainlink ACE and CRE:

1. User Onboarding (Offchain Verification): Users seeking compliant access (e.g., institutions) interact with a widget or dashboard (integrated via Sumsub or similar). This performs ID verification, liveness checks, deepfake detection, fraud prevention, and AML screening. Upon success, a verifiable CCID is issued, including proofs of ID, sanctions check, and onboarding status.

2. Onchain Policy Enforcement: The CCID feeds into YieldCoin's Policy Manager (via ACE). Before deposits or interactions:

   • CCID Checker validates identity.

   • Wallet Risk Score assesses transaction history (via CRE-oracle integrations).

   • Sanctions, Jurisdiction, and Geo Checks ensure regulatory alignment.

   • Risk scoring (e.g., via TRM integration) flags high-risk wallets.

3. Pre-Transaction Eligibility: For vaults or cross-chain reallocations, ACE automates whitelists and checks to permit only compliant access. This uses CCIP for cross-chain token movements, ensuring policies travel with assets.

4. Ongoing Monitoring and Reporting: CRE monitors transactions for anomalies (e.g., unusual patterns via behavioral intelligence). Inputs from CRM, activity monitoring, tips, bank alerts, support, and law enforcement flow into AI-driven analytics. Outputs include case decisions, regulatory filings, recurring monitoring, partner referrals, audit trails, examiner views, team analysis, and system integrations—handled via tools like Hummingbird.

5. Yield Accrual and Withdrawals: Compliant users deposit stables into YieldCoin vaults. CRE triggers optimal rebalancing across protocols (Aave, Compound, etc.), with yields accrued net of 10% streaming fee. Withdrawals undergo similar policy checks for compliance.

This setup ensures YieldCoin scales to $10B+ TVL while meeting global standards, unlocking institutional capital without centralization risks.

Compliance Flow Diagram

Below is a Mermaid diagram representing the compliance flow in YieldCoin, inspired by standard institutional DeFi vault integrations but adapted for our Chainlink-native stack. (For GitBook, embed this as a code block for rendering.) <insert here>

Benefits of YieldCoin's Compliance Approach

• Institutional Trust: Enables banks, custodians, and stablecoin issuers to integrate YieldCoin for extra yield on treasuries, with full KYC/AML hooks.

• Privacy and Efficiency: Fuzzy extractors ensure sybil-resistant, privacy-preserving compliance without exposing user data.

• Scalability: CRE handles complex computations offchain, while ACE enforces policies onchain, supporting 10,000+ chains via Concero.

• Risk Mitigation: Pre-audit with Cyfrin, Certora formal verification, and planned Nexus Mutual coverage complement compliance for end-to-end security.

• Aligned Incentives: Compliance unlocks Phase 3 expansions (SDK/API for TradFi), driving TVL growth and protocol revenue.