Proxy Smart Contract Verification for Compliant DeFi Access
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Solution Overview
Problem
Institutions, such as financial institutions or banks, are unable to interact with decentralized finance (DeFi) applications or smart contracts in a compliant and permissioned manner due to the lack of trust in other participants.
Innovation Solution
A digital identity framework and infrastructure system that includes a proxy smart contract, verifier smart contract, and digital identifier registry, which verifies and executes trades using verifiable credentials from authorized traders, trusted entities, and root issuers, establishing a chain of trust and compliance with predefined rules.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Ease of operation
If institutions participate in DeFi smart contracts without verification mechanisms, then transaction speed and ease of operation improve, but reliability and trustworthiness deteriorate
Solution Approach 1:
The system performs preliminary verification of institutional credentials before allowing participation in DeFi smart contracts. The verification smart contract checks credentials in advance, ensuring that only verified institutions can interact with DeFi protocols, thus maintaining reliability while enabling ease of operation for authenticated participants
Solution Approach 2:
The patent introduces a verification smart contract as an intermediary between institutions and DeFi smart contracts. This intermediary verifies institutional credentials and facilitates trusted interactions, allowing institutions to participate in DeFi with confidence while maintaining the decentralized nature of the ecosystem
2Reliability
If comprehensive verification of institutional credentials is implemented, then reliability and compliance improve, but device complexity and processing time worsen
Solution Approach 1:
The verification system is segmented into distinct components: credential issuance by trusted entities, credential storage in digital wallets, verification smart contracts that check credentials, and registry smart contracts that maintain credential databases. This segmentation allows comprehensive verification while managing system complexity through modular design
Solution Approach 2:
The verification smart contract serves multiple functions: it verifies institutional credentials, checks compliance with DeFi protocol requirements, and facilitates authenticated interactions. This multi-functionality reduces the need for separate verification mechanisms for each DeFi protocol, thereby managing complexity while maintaining comprehensive compliance checking
3Reliability
If verifiable credentials are verified on-chain, then transparency and reliability improve, but processing time and computational resources worsen
Solution Approach 1:
The verification process performs partial verification on-chain by checking essential credential validity and compliance requirements, while more detailed verification can occur off-chain. This approach provides sufficient transparency and reliability for DeFi interactions without requiring complete verification of all credential aspects on the blockchain, thereby reducing processing time and computational overhead
Data Source
AI summary
Systems and methods for using digital identity frameworks to access and interact with decentralized applications are disclosed. A method may include a proxy smart contract: receiving a trade from an authorized trader and an on-chain format of a verifiable credential, wherein the on-chain format of the verifiable credential comprises a flattened array of an authorized trader verifiable credential, a trusted entity verifiable credential, and root issuer verifiable credential; verifying, using a verifier smart contract, the on-chain format of the verifiable credential, wherein the verifier smart contract queries a digital identifier registry to verify that an authorized trader digital identifier, a trusted entity digital identifier, and a root issuer digital identifier associated with the root issuer verifiable credential are active; and in response to the authorized trader digital identifier, the trusted entity digital identifier, and root issuer digital identifier being active, executing, with a decentralized finance smart contract, the trade.