Legal FAQ: Compliance & AML/KYC
KYC Requirements
Do Capital Providers or Vault users need to undergo KYC/AML checks?
The protocol itself doesn't require KYC/AML, but Capital Providers may implement their own requirements.
Protocol Level
Octant's non-custodial architecture operates without KYC/AML requirements. Capital Providers interact with smart contracts using wallet addresses, maintaining pseudonymity. The protocol doesn't collect identity information or perform customer verification.
Capital Provider Discretion
Individual Capital Providers may choose to implement KYC/AML based on their jurisdiction's requirements, risk tolerance, or governance decisions. For example, Capital Providers might require verification for Regens participating in funding rounds or projects receiving grants.
Some Capital Providers operate with fully permissionless participation, while others implement whitelisting or basic verification, particularly for larger allocations or sensitive use cases.
Practical Variations
Foundation Capital Providers often have more flexibility regarding KYC requirements compared to corporate entities. DAOs frequently operate without KYC, given their decentralized nature. Geographic restrictions might be implemented through frontend interfaces rather than identity verification.
The approach typically depends on the Capital Provider's risk assessment and local regulatory guidance rather than protocol requirements.
When is a Capital Provider considered to be "handling third-party assets"?
Handling third-party assets typically occurs when a Capital Provider accepts deposits from external parties rather than using its own treasury.
Clear Third-Party Handling
Capital Providers would be handling third-party assets if they accept deposits from individuals or entities expecting returns, pool funds from multiple parties for collective management, or take custody of tokens belonging to others. These activities typically trigger financial services regulations.
Standard Capital Provider Operations
Most Capital Providers avoid third-party handling by deploying only their own treasury or ecosystem funds, maintaining exclusive control over their vaults, and enabling community participation through voting rather than deposits. When Regens stake tokens, they do so in separate contracts they control, not in the Capital Provider's vault.
Grey Areas
Complexity may arise if Capital Providers receive large donations that come with expectations, manage funds on behalf of their broader ecosystem, or allow affiliated entities to co-invest. The characterization often depends on documentation, control rights, and the economic relationship.
Risk Mitigation
Generally, Capital Providers that have clear policies to deploy only proprietary funds, document the self-directed nature of their operations, and avoid marketing language suggesting investment management services mitigate the risk of third-party fund management.
Custody Solutions
If required, Octant can work with custody service providers to solve custody-related limitations.
What level of KYC is required for grant recipients from Capital Provider Funding Round Wallets?
KYC requirements for grant recipients are determined by each Capital Provider based on its jurisdiction and risk tolerance.
Variable Requirements
Capital Providers typically implement tiered KYC based on grant size and jurisdiction. Common approaches include basic information for smaller grants, enhanced diligence for larger amounts, and sanctions screening as a minimum standard across all recipients.
Foundation Capital Providers often follow charitable grant-making standards, while corporate Capital Providers may apply standard vendor processes. The specific requirements depend on each Capital Provider's legal obligations and risk assessment.
Streamlined Solution
Octant can offer integrated third-party KYB/KYC services that Capital Providers may optionally select to streamline their compliance operations. This provides efficient screening tools while allowing Capital Providers to maintain control over their compliance standards.
Geographic Restrictions
Can Capital Providers fund projects worldwide?
Capital Providers typically cannot fund projects in sanctioned countries or to designated entities on sanctions lists. Some may also prefer not to engage with jurisdictions where their activities might trigger licensing requirements or where regulatory risk is unacceptable.
Common restrictions include OFAC-sanctioned countries, jurisdictions with unclear crypto regulations, and regions where the Capital Provider lacks the capacity for compliance. Each Capital Provider determines its geographic scope based on legal advice and risk assessment.