aszepieniec 2025-01-01 👍 👎
- Tokens/Erc-20.
These are typically smart contracts operating on a blockchain such as Ethereum that provides some kind of “wrapped” token for each supported cryptocurrency, and for fiat as well, and bidirectional bridges. These require trust in the bridge operators, the wrapped token mechanism, the underlying blockchain, and the fiat stablecoin operators.
It is worth noting that Neptune offers a way to avoid trusting bridge node operators. Neptune smart contracts can verify the consensus mechanism of the target chain, and at this point they can conjure an equal amount of wrapped tokens that were locked on target chain. Verifying the smart contract is cheap because Neptune is STARKs all the way down; the cost is born by the transaction-initiator.
Conversely, if the target chain can process arbitrary logic, then it can be made aware of Neptune’s consensus (by verifying a STARK proof) and unlock an equal amount of native tokens that were burned on Neptune.
This construction is technically challenging. In particular, it requires two missing features (that are nevertheless firmly on the roadmap):
- Continuations. Lets you split op the production of a proof of a long-running computation (like verifying the consensus mechanism for all of history of a given chain) into combining a bunch of proofs of segment-chunks.
- Succinctness. Lets you evaluate the block fork rule (and thus, decide which candidate chain is canonical) with negligible computational work. This is the feature that allows the target chain to verify the consensus of Neptune by verifying just one STARK proof.
These technical challenges must be solved for trustless wrapped tokens which are pegged at a 1-1 rate. If we drop the peg, then we can make do with cross-chain atomic swaps and these do not present the same challenges.
Making the website a middleman in each transaction is also a liability for the website operator as it potentially introduces a legal responsibility to ensure there is no criminal activity happening, etc, which then may legally require KYC, etc. I believe this is why most of these types of websites have ceased operations in recent years.
My understanding is that the cost of operations (including, especially, compliance) was larger than the income, so they made the rational choice to wind things down. The economy of scale benefits huge exchanges, where the compliance formula is optimized and then rolled out at scale. As an end-user who has to do KYC anyway, you prefer the more streamlined onboarding process and the reduced slippage of larger exchanges.
The website is never a middleman in any transaction and takes no fees, so there should not be any legal obligation (ianal) to perform KYC or other checks.
I am not a lawyer either but I did take note of a worrying precedent set by the Dutch courts in the Pertsev ruling, which is being appealed. Custody was ruled not to be a prerequisite to culpability. The court agreed that stopping Tornado Cash or freezing the funds in a targeted or even blanket way were not within Pertsev’s capabilities. The relevant fact, in the eyes of the court, was Pertsev’s software development activities that amounted to money laundering. Moreover, the fact that Pertsev was a beneficiary of fees derived from this money flow was found to be irrelevant for the determination of guilt; it was taken into account for deciding the severity of the sentence.
This precedent may percolate to other courts. And even if this particular ruling is overturned, it still provides legal ammunition for hostile states. Based on my cynical reading, I would say that in the eyes of the law, never being a middleman in any transaction is not sufficient to exculpate the website operator of complicity in crimes that are enabled by that website.