Travel Rule Discovery Challenge: FIO Protocol Solution

Owned by Pawel Mastalerz
Last updated: Jun 22, 2021
3 min read

The first problem for centralized crypto exchanges in complying with the Travel Rule is Discovery, which is the need to know the following when a crypto withdrawal is being requested by a user:

  • Is the owner of the private key to where funds would be sent covered by Travel Rule requirements?

  • If so, what Travel Rule information must be sent?

  • And how should Travel Rule data be sent?

The FIO Protocol (https://fioprotocol.io/) is a delegated proof of stake blockchain that acts as a usability layer for the entire blockchain ecosystem. There are more than a dozen wallets and exchanges that have already integrated the FIO Protocol to enhance usability for users.

Among other capabilities, the FIO Protocol provides human readable wallet “names” called FIO Addresses that can be mapped to public addresses of any blockchain by the owner of the corresponding FIO Private Key. FIO Addresses are different from previous “wallet name” attempts in a number of ways. Most pertinent to the Travel Rule Discovery problem is the structure of FIO Addresses which includes the concept of a Username and Domain. The FIO Domain is a separate Non-Fungible Token (NFT) which has control over rules on how FIO Address NFTs can be created that utilize the FIO Domain NFT:

 

The unique structure of FIO Addresses means that a regulated centralized exchange can hold a FIO Domain NFT and can control FIO Address registrations on that FIO Domain such that third parties can know with certainty that any FIO Address registered on that FIO Domain are controlled by the same centralized exchange.

If all regulated centralized exchanges in the world required their users to use FIO Address for deposits and withdrawals then any sending exchange would be able to easily know by evaluating the Domain of the FIO Address to which a withdrawal of crypto is being sent whether the Travel Rule applied as it would be a simply task for regulated exchanges to have a shared list of FIO Domains they control.

However, it is not realistic that all regulated centralized exchanges would require their users to utilize FIO Addresses for deposit/withdrawal in a near term time frame because there would be too many applications to which crypto might be sent which still are not FIO integrated and therefore don’t support FIO Addresses.

Fortunately, the FIO Protocol can enable a solution for the Travel Rule Discovery problem without requiring any change in user process/experience.

This is possible by centralized exchanges simply utilizing the FIO Address/Domain capabilities of the protocol in the background. A FIO Domain registered by a regulated exchange could be encoded with information about whether the Travel Rule applies, what specific Travel Rule data must be received and how that data should be sent. Mappings of public addresses on the exchanges FIO Domain for crypto deposit purposes can then be performed by an exchange as part of the crypto deposit process. And when a withdrawal from an exchange is being processed, that exchange through a simple API call can discover whether the public address to which crypto is being sent is: 1) controlled by a regulated exchange where Travel Rule Data is required; 2) The specific travel rule data that needs to be sent; and 3) how it should be sent.

Process Flow: Travel Rule Discovery Using FIO Protocol Without Changing User Experience/Process

 

 

Sequence Diagram

User_2 on VASP_B is sending funds to User_1 on VASP_A