25 May 2022

Why is KYC needed for Launchpads?

Over the last several years, crypto launchpads have emerged as powerful tools for crypto projects to raise capital – and for investors to get access to early stage coin sales. 

In effect, crypto launchpads serve as incubators for crypto projects, and offer a platform for investors to make early investments in crypto projects they believe have the potential to grow in value. Projects that use a launchpad to raise funds usually offer their coins at a bargain sale in order to incentivize greater investment in the project prior to a public sale. 

In parallel, launchpads are attractive options for project founders as they allow projects to make the case for their cryptocurrency and access investor pools with relatively little investment.

This effectively makes them a powerful gatekeeper for the crypto industry: the projects and investors they admit to their platforms will in many cases go on to define what the crypto space evolves into.

Reputable launchpads provide certain levels of security and protections against fraud that are often not present in ICO sales. 

And that's important: As crypto projects continue to grow in number – current estimates put the number of crypto projects at over 10,000 and rising (despite the recent market rout) – so too has the proliferation of coin based scams that are usually targeted at investors, but can also affect crypto issuers. 

KYC: Key anti-fraud tool 

Projects on crypto launchpads are set up with infrastructure that provides enhanced security and transparency for project creators and investors. Projects go through a rigorous vetting process before being admitted to a launchpad. For verifying users, launchpads tend to use an extensive KYC (Know Your Customer) process through a third party.

The cornerstone of crypto launchpads’ anti-fraud and anti-scam measures are usually based around robust KYC AML measures that effectively vet investors and projects, establishing their identity in order to ensure accountability. 

Crypto launchpads that implement effective, automated KYC processes can benefit from a number of key aspects, such as: 

  1. Regulatory Compliance – Financial regulators around the world continue to refine and expand regulations governing cryptocurrencies and virtual assets (VAs), as well as the companies and platforms that facilitate their trade and exchange. 
  2. Track Records – By implementing effective KYC on their users, crypto launchpads can stay ahead of the regulatory axe and ensure they have a verifiable track record of their users, should any irregularities in trades ever surface, or if a regulatory audit ever requires documentation of transactions and financial activity.
  3. Access to Financial Markets – Banks are increasingly demanding that any platform or individual engaged in crypto trading has demonstrated that their counter-parties have been adequately vetted, including through the use of crypto wallet screening
  4. Build Trust – In contrast to the relatively prevalent belief in the crypto community that KYC processes can discourage investors who value anonymity, the reality is that most commercial and institutional investors appreciate the security and accountability that KYC processes provide. 
  5. Expand investor pools – In addition to providing potential investors and crypto project founders with the added assurance of KYC, automated KYC technology can effectively ensure that crypto launchpads can onboard users from a wide range of international jurisdictions, without the concern that they are in violation of national regulatory or global sanctions regimes. 

KYC provides more than just security: it builds trust among users. 

The most prominent and trusted crypto launchpads all implement certain levels of KYC on their users, as security forms a key component of their value offering.  

In effect, an automated KYC solution for a crypto launchpad will be fine-tuned according to each platform’s specific requirements, but will in essence carry out the following checks:

  • ID document verification (IDV)
  • Liveness checks that establish whether the person applying to use the launchpad is the same person as that represented in their submitted ID documentation
  • Biometric selfie confirmation
  • Crypto wallet screening
  • Know your business (KYB) checks for institutional investors / projects 
  • Enhanced identity data verification
  • AML screening against global sanctions, PEP and adverse media lists.

These checks will be carried out as part of a Risk-based Approach to compliance that assigns risk scores to prospective users / customers. This allows low-risk users to be automatically onboarded with no friction, while high risk customers are subject to more extensive screening. 

This allows crypto launchpads to have a clear view of who they are providing services to, and to take educated decisions on the amount of risk that they want to expose themselves to.

KYC-Chain provides end-to-end onboarding solutions for companies and platforms from a wide range of industries – from OTC Trading Desks and crypto exchanges to DeFi projects and precious metals traders and many more.

Our proprietary solutions are tailored to the specific needs of each client, ensuring that they are able to balance compliance with efficiency and positive user experiences in a way that allows them to scale and grow with confidence – and without the unnecessary burden of resource-draining manual compliance checks or the risk of regulatory sanctions.  

KYC-Chain works with crypto launchpads to help them securely vet their users before providing them with investment opportunities for listed crypto projects. By implementing KYC-Chain, launchpads can ensure that investors are who they say they are, providing the crypto ecosystem with a solid footing for future growth. 

Looking for an efficient and effective KYC solution for your launchpad or project? Get in touch and we’ll be happy to start a conversation about it. 

 

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