ckBTC and KYT Compliance

[theguy]

Think if dfinity is willing to postpone this, we can easily Reach out to Memecake, inf swap, genesis to see if they’re interested as well as post out on twitter for builders to come forth

This is given dfinity provides the docs and is willing to work on this to release a full and secure product

[theguy]

Incentives are, the subscription hosters would get paid per call made to their subscription service which is enough to motivate people, especially at this point

[Berg]

There won’t be a single rejection, because Dfinity will ensure the vote passes. Simple as that.

[theguy]

Agreed with this

We are all fully aware of the centralised nature of NNS so in reality all we have is this forum

[NS01]

I have submitted a request to Chainalysis today - however need to see what kind of costs there are for the API access. Unlike Toniq, 221Bravo/ Genesis II doesn’t have any reason beyond ckBTC to pay for the API access (at the moment). The question then centres around KYT fees and if this would come close to covering the costs. I don’t mind being slightly out of pocket for the greater good of ICP… however my overall budget/ available funding for building on the IC is modest.

[Internationalwaters]

Maybe just fork spinner cash to take ckbtc and let people redeem for icypees token

[JxBrian]

@Sormarler

Yes, someone else can literally build another ckBTC ledger but everyone is waiting on Dfinity to act. I am in agree with most people wanting to do this KYT thing the right way but it’s also very telling that there are no one willing to take the charge and build a ckBTC alternative with no KYT at all. It’s very easy to complain but hard to build I guess.

My guess is that financial distribution is the main cause why there isn’t any competitor to dfinity. So the decision that dfinity makes has lasting impact. It might take 2 to 6 years for anyone to enter the market to compete with the KYT decision if it is implemented. That is because it is not easy to find talent and fuel canisters to work with demand as needed by the market. Now if dfinity released ckBtc without KYT, then Tonic can enter the market and charge developers who want to use KYT. This would distinguish KYT from the dfinity developed ckBtc and NNS canisters. That will be a win win for everyone. The community would be free from a centralized entity, and the US would enforce KYT as the option would have been made available for developers in their country.

[wpb]

@Jan

As we navigate as a community through such challenging situations, decentralization remains the number one priority. Moving forward the vision is to have multiple KYT providers and API key holders as well as multiple ckBTC variants, including non-KYT canisters controlled by the NNS. While the ckBTC canister is currently controlled by the NNS, this could change in the future, e.g., to be controlled by an SNS. However, that will require a thorough design and take time to implement. For now, control by the NNS is the most secure and also fastest way to move forward.

Why am I not surprised to see so many people who apparently didn’t read the full message by @Jan. The ckBTC KYT solution proposed by DFINITY is solid and the service offered by toniq is fair. Let’s move forward and get this ckBTC thing launched. If anyone wants more KYT providers or API key holders, then do it! If anyone wants a non KYT version of ckBTC, then do it! For now, I would like to see the version proposed by @Jan move forward.

[JxBrian]

@wpb

The ckBTC KYT solution proposed by DFINITY is solid

It is clearly not solid… as stated the SNS move has to be designed!

[LightningLad91]

Well that’s that. Pack it up and ship. The final word has been spoken.

[wpb]

@Kyle_Langham

One thing that is getting overlooked is @bob11’s post two weeks ago (ckBTC and KYT Compliance - #24 by bob11). Toniq, on their own accord, put in a lot of time and effort to understand and solve the KYT solution, including retaining legal advice, seeking compliance council and receiving bids from KYT providers. They obviously did this because they have a vested interest in ckBTC with their Ordinals plan. The answer to “why Toniq is first” is simply they put in the work early on. As discussed above, we all (DFINITY and the community) hope Toniq is not the only KYT for ckBTC.

Exactly. Anyone can do what toniq is doing, but they saw a need and took action to solve the problem. It’s easy to criticize. It’s hard to actually roll up your sleeves and put in the work necessary to achieve progress. Toniq is the first to take the risk, make the commitment, develop the expertise, address the legal issues, and help solve the problem. They earned the right to be the first on the list. There is nothing stopping others from doing it too.

[wpb]

@Sormarler

Yes, someone else can literally build another ckBTC ledger but everyone is waiting on Dfinity to act. I am in agree with most people wanting to do this KYT thing the right way but it’s also very telling that there are no one willing to take the charge and build a ckBTC alternative with no KYT at all. It’s very easy to complain but hard to build I guess.

Also how about someone else get a chainalysis subscription or any other KYT providers and compete instead of waiting for Dfinity to initiate the whole thing? So far I have only seen theguy asking about how to actually solve the problem. I have reached to chainalysis find out more about the subscription and the price for it. If that’s something individuals can do then I would be interested in providing such service and get compensated for it.

We know what the problem is. Let’s be more solution-minded now.

Thank you for offering a level headed perspective as always.

[JxBrian]

@wpb

Exactly. Anyone can do what toniq is doing, but they saw a need and took action to solve the problem. It’s easy to criticize

What do you know about toniq. Are they a named neuron? How much funding do they have? What are their ethos? Can they manage the threshold of the market? What about their real time analysis of tainted BTC? Have they been tested? This is all information I believe needs answers before blindly accepting to have a working relationship with the larger community.
And it’s not anyone can do what toniq has done. It’s, people with funds can be in a position to do what toniq has done.

[bob11]

Not here to answer everything, just wanted to provide a bit of context.

1. From the many legal and compliance conversations I have had, KYT is absolutely mandatory for any company that uses a token like ckBTC and allows US citizens to interact on their platform. So either you block US citizens from using your platform or you use KYT (not legal advice).
2. Toniq is not making money on being a KYT provider. ckBTC fees will be paid to Toniq, but these fees all go to covering costs and that is it. No profit, so hard to see why anyone would want to be a KYT provider.
3. Being a KYT provider is more of a burden than anything else. There is nothing glamorous about this.
4. It is very likely Toniq will lose money as a KYT provider. You have to sign a yearly contract (all KYT providers I’ve spoken to do yearly contracts) and you have to pay for the full year upfront. Then you hope to have enough volume to cover the upfront costs. Even with high volume, Toniq won’t make money, fees just go down a little bit to wrap.
5. Decentralized KYT doesn’t exist right now. You have to have a centralized entity that manages the KYT process. That entity could be Dfinity, a VC firm, a KYT provider itself, or a business entity. Regardless of who you pick, you still have a point of centralization. I think the goal is to have many different providers that can play this role (maybe even do a 2/3 consensus model) but costs are a concern here as KYT is fairly expensive.
6. The KYT provider in the proposed model has a VERY limited scope. The only abilities granted to this KYT provider are (1) add API key to KYT canister, and (2) withdraw funds from fees. No code changes. No canister control. No ability to tamper with anything.
7. The risk associated with having a single KYT provider are very low. The only thing a KYT provider could do is turn off their API key. In this case, the ckBTC minter would stop working (because no KYT). In this case, Dfinity (or anyone) would initiate a proposal to the NNS, and we would whitelist a new KYT principal to add a new API key. Once the new API key is in, everything resumes as normal. No funds lost. Nothing broken. Just a few hours of delay. Because of this low risk, I’m in favor of enabling ckBTC now (with a single KYT provider) and decentralizing the KYT process with additional providers over time as others are willing to assume the additional risk and responsibility of being a KYT provider.

I know I haven’t addressed all points, but hopefully this provides some missing context around KYT.

[bitbruce]

I see that you have decided to implement the KYT program, so I will not raise any further objections.

But we need to address the issues that we face. These problems stem from the fact that blockchain data is deterministic and off-chain KYT data is non-deterministic (and sometimes subjectively biased).

Let me describe the problem.

1. User A adds BTC (this time its utxo passes the KYT check), gets ckBTC and spends it. After two days, this utxo is marked as tainted by KYT, so what happens then? How to make sure the non-contaminated BTC:ckBTC = 1:1?
2. If multiple KYT providers are used, what should be done when one provider considers a utxo to be contaminated and another considers it to be uncontaminated?

[JxBrian]

@bob11

Toniq is not making money on being a KYT provider. ckBTC fees will be paid to Toniq, but these fees all go to covering costs and that is it. No profit, so hard to see why anyone would want to be a KYT provider

@bob11 Great points! The information you provided is helpful in understanding the nature and business structure of KYT.

However I think toniq needs its own SPOKESPERSON to answer questions like where is the company registered? Is it a non profit company? Are they subsidized by a government? How many employees does the company have. Do they have a website? What is their budget? Do they have enough talent for emergency cases?

Switching off an API just to restart it is detrimental to business. What if someone had a position in a stock market that they have to close. Time is of essence in such a situation and for them to even think about using ckBtc in such a manner, they have to know how quick a matter might be solved. Or what if someone is paying employees with the ckBtc mechanism. Employees don’t care about what happened and they can’t go long without quitting. So an employer would need clarity on the confidence of the system. Again these are just worst case scenarios imagined that would probably not occur but if they do can be of catastrophic magnitude.

When you listen to Dom marketing the IC, you can tell he understands the market and his ideas are well put and you can tell he took time overseeing a great product being made. As a result of him taking time he knew how to deliver the message hence developers who joined the IC had none of those questions in their mind. They automatically knew where the company was located, what branches it had, how long they had been in business, the R&D, the numbers of employees and many more. Now that the tide is going towards toniq side I think they aught to speak more to clarify on some of these concerns. Also it would be nice to know what Dom thinks of the KYT canister.

There is no need to rush as there is no other companies developing ckbtc. There needs to be more time allocated for the dfinity team and the community at large to discuss this issues more. Or if dfinity has already made their decision they need more time to see if they feel the same way about the decision they made. There have been numerous stages of IC development that have been postponed and this ckBtc won’t be the first one.

[dfisher]

Interesting. Why am I not surprised. I’d like to take a moment to actually thank Bob and Toniq for performing what is essentially a public service to the IC community.

As a result of Toniq doing this service at a cost to them, ckBTC can be kickstarted. Toniq can launch their ordinal marketplace, and all the other defi apps can utilize ckBTC.

So yeah, thanks Bob. Hopefully others will step up too as we decentralize this. I would like you and other folks to actually get paid for this service in the future as you are doing work, incurring costs, and providing a benefit to the entire IC ecosystem.

For now I appreciate you doing this for no margin and at a cost to yourself. The future designs need to be different to be sustainable.

[JxBrian]

@dfisher

As a result of Toniq doing this service at a cost to them, ckBTC can be kickstarted.

To be fair not all money is good money. If someone if incurring costs they aught to explain how they got that money. Because they are not just throwing or handing out money.

Is the money being spent on KYT canister an investment of toniq; if so who are the investors.

Or is it someone doing goodwill work ?

[Denis]

@bob11

• Toniq is not making money on being a KYT provider. ckBTC fees will be paid to Toniq, but these fees all go to covering costs and that is it. No profit, so hard to see why anyone would want to be a KYT provider.
• Being a KYT provider is more of a burden than anything else. There is nothing glamorous about this.
• It is very likely Toniq will lose money as a KYT provider. You have to sign a yearly contract (all KYT providers I’ve spoken to do yearly contracts) and you have to pay for the full year upfront. Then you hope to have enough volume to cover the upfront costs. Even with high volume, Toniq won’t make money, fees just go down a little bit to wrap.

Thanks for your explanation, @bob11. What this indicates is that there is no reason at all for anybody else to become a KYT provider.

@wpb

If anyone wants more KYT providers or API key holders, then do it!

I think we now know why nobody else is doing it or will do it. I might want more KYT providers but that doesn’t mean I am willing to take the effort to become one when it is a money losing or at best break-even proposition.

I think it’s great that we have someone up and ready to be a KYT provider provided KYT is from the start an optional service, an extra step investors can choose to take, rather than something baked into the design of ckBTC. If there was no connection between KYT provision and the NNS, absolutely nobody would object to Toniq being a KYT provider, and maybe a model could develop where Toniq can make a profit with a little extra tacked on to ckBTC fees for their service.

[theguy]

@JxBrian

Switching off an API just to restart it is detrimental to business. What if someone had a position in a stock market that they have to close. Time is of essence in such a situation and for them to even think about using ckBtc in such a manner, they have to know how quick a matter might be solved. Or what if someone is paying employees with the ckBtc mechanism.

^ this is the point

I work with traders daily, these aren’t an “Oh well another time” type situation!

The low risk depends on the user and it would absolutely be the chain level FUD event and exactly why a different design is needed

Also what is the cost? And what %fees will Toniq get per transaction? Is this not going to be transparent?