Public Block chain is a decentralized, distributed ledger technology that allows anyone to participate in transaction verification and network maintenance. Compliance is the key to the widespread application of public chains in regulated industries such as finance, requiring them to comply with legal and regulatory standards such as KYC (know your customer) and AML (anti-money laundering). Compliance not only enhances the trust of users and regulators in public chains, but also effectively reduces the risk of illegal activities such as money laundering and fraud. Globally, public chains must also comply with regulations such as the EU General Data Protection Regulation (GDPR) to ensure legitimacy and sustainable development.
As the core application of blockchain technology, the regulatory environment of public chains is rapidly evolving. From the initial widespread suspicion to the cautious acceptance today, the international community's attitude towards public chains has gradually changed. The decentralization, transparency and immutability of public chains are seen as having revolutionary potential, but they also bring challenges such as market volatility, financial crimes and regulatory difficulties. To this end, regulators around the world are working to develop frameworks that strike a balance between encouraging innovation and controlling risks.
Regulatory trends:Countries are increasingly strengthening their regulation of public chains and crypto assets. For example, the European Union passed the Markets in Crypto Assets Regulation (MiCA) in 2023, becoming the world's first legal framework to comprehensively regulate crypto assets.
Policy differentiation:Regulatory strategies vary significantly across countries. China has completely banned cryptocurrency trading and mining, while the United States and the European Union have gradually regulated through legislation. The European Union imposes bank-like regulation on stablecoins and cryptocurrencies to protect financial stability and consumer rights; the United States tends to support stablecoins and maintain the global status of the US dollar.
Equal emphasis on innovation and risk:Despite stricter regulation, many countries still recognize the potential of public chains in areas such as finance, supply chain, and healthcare. For example, Singapore and Japan reserve space for blockchain innovation while strictly regulating.
The Web3 industry is unique due to its decentralization and anonymity, but this also makes it face complex compliance requirements in various countries. These requirements are intended to ensure that the project operates legally, but often restrict its free development and global expansion. Compliance not only increases operating costs, but may also bring legal risks, resulting in serious consequences such as lawsuits, huge fines or even imprisonment for project founders or core members.
Compliance requirements force blockchain projects to invest a lot of resources in legal consulting, compliance audits and regulatory reports to ensure compliance with the laws of various countries. This high cost puts direct pressure on the financial status of the project, especially for start-up projects, and may become a heavy burden for development.
Binance: In 2023, Binance was fined $4.3 billion by the U.S. Department of Justice for money laundering and violations of the Bank Secrecy Act. This huge fine not only weakens its financial strength, but may also lead to the loss of market share.
The complexity of compliance requirements and the inconsistency of regulatory policies in various countries make it difficult for project parties to fully foresee and respond to legal risks. Once the regulatory red line is violated, the project may face lawsuits, fines or even business interruptions, which will seriously affect the development process.
Ripple: It went to court with the U.S. Securities and Exchange Commission (SEC) over whether XRP is a security. In 2023, the court ruled in partial favor of Ripple, but still fined it $125 million. During the lawsuit, Ripple consumed a lot of resources, and XRP's market performance and project ecological development were also significantly dragged down.
Compliance requirements may result in the project being banned from operating in certain regions, limiting its global layout. If a token is identified as an unregistered security, it may be delisted by the exchange, damaging the user base and market share.
Solana: In 2022, Solana faced a class action lawsuit because its token SOL was accused of being an unregistered security, which hindered its promotion in some markets.
Polygon: In 2023, the SEC listed MATIC as an unregistered security in its lawsuit against Binance, so it was delisted from platforms such as Robinhood, directly affecting market share and user growth.
Compliance requirements may limit the space for project parties to explore technological innovation and business models. To avoid regulatory risks, projects may have to adjust their development direction or abandon certain cutting-edge attempts, thereby weakening their competitiveness and long-term development potential.
Cardano: In 2023, the SEC listed ADA as a security in its lawsuit against Kraken and Binance. This label may limit the application and promotion of Cardano in certain markets, forcing it to adopt a more conservative strategy in ecological construction, and thus slowing down the pace of innovation.
Compliance issues not only affect the project itself, but may also affect the founders or core members, exposing them to legal proceedings, fines or even imprisonment. This not only shakes the stability of the project, but may also have a negative impact on the reputation of the entire industry.
Binance founder Zhao Changpeng: In 2023, Zhao Changpeng pleaded guilty and resigned as Binance CEO for compliance issues, and was subsequently sentenced to 4 months in prison. This incident directly affected Binance's operations and may weaken its leadership in the industry.
/USDT: Tether settled with the U.S. Commodity Futures Trading Commission (CFTC) for misleading reserve statements, paid a $40 million fine, and continues to face U.S. federal investigations for possible violations. These events pose a threat to its market trust and business expansion.
Compliance requirements have imposed many constraints on the development of blockchain projects, especially at the critical stage of opening up new markets and increasing market share. Compliance requirements may become a "tightening curse" for blockchain projects. Therefore, while pursuing innovation and expansion, project parties need to attach great importance to compliance challenges and formulate strategies to balance development and compliance.
As a public chain project launched in May 2023, Sui has quickly emerged in the blockchain field with its unique technical architecture and user-friendly design.
Compared with many other public chain projects, Sui has demonstrated remarkable robustness in the nearly two years since its launch, especially in terms of regulatory compliance and network security. So far, Sui has not been prosecuted or charged for any regulatory issues or security incidents. This performance not only highlights the rigorous attitude of its development team in technology and compliance, but also wins trust and reputation for it in the highly competitive blockchain market.
At the same time, Sui's recent performance further proves its market potential. With the rapid development of the Sui chain ecosystem and the continuous increase in community popularity, Sui's market value has soared to more than US$11 billion, ranking in the top 11 of the global virtual currency market value rankings. This market value not only reflects the market's high recognition of Sui's technological innovation and application prospects, but also indicates that it occupies an important position in the competition in the public chain field.
Figure 1 Crypto Market Value Ranking
Among the top ten projects in the world's cryptocurrency market value, USDT and USDC as stablecoins, and DOGE as a MEME coin, occupy a unique position. If these three are excluded, Sui ranks 8th in the public chain market value. This achievement is particularly noteworthy because among the top ten, the youngest project is Solana, which has been online since March 2020 and has been running for 5 years. As a public chain that was only launched in May 2023, Sui has ranked among the top 11 in global market value in just two years. This achievement is undoubtedly amazing, fully demonstrating Sui's extraordinary development speed and potential in the blockchain field.
Figure 2 Currency launch time and attributes
So, how did Sui grow so fast and gain a foothold in the fierce WEB3 competition while maintaining compliance?
Sui Chain is an emerging L1 blockchain platform developed by Mysten Labs to provide fast, secure and scalable solutions for Web3 applications. It uses the Move programming language, emphasizes high transaction speed and low latency, prioritizes fast and secure transaction execution, and is particularly suitable for real-time applications such as games and finance. Sui provides a familiar user experience, such as logging in with network credentials (zkLogin), and supports large-scale applications by expanding network capacity as needed.
The modular design of the Move language allows developers to organize code into reusable modules and supports formal verification to ensure that smart contracts behave as expected. Compared with the more widely adopted EVM language, the Move language has the advantage of being more advanced and more suitable for the current development of blockchain.
It has a significant advantage in security, mainly due to its resource model. In Move, each data object has clear ownership to ensure that resources cannot be accidentally or maliciously copied or destroyed.
Another key advantage of the Move language is its performance and scalability. Move supports parallel execution of transactions, while EVM uses sequential processing, which may cause transaction congestion and rising fees under high load.
Move's modular design makes it more advantageous in developer experience. Move programs are organized into modules, sharing resources and functions, and convenient for upgrading and combination.
Just recently, Vitalik, the founder of Ethereum (ETH), also said that he proposed to replace the Ethereum virtual machine with RISC-V. RVIS-V and Move language also have many similarities, the most important of which is modularity and scalability. Both RISC-V and Move emphasize modularity and scalability in design, support user-defined instruction extensions, and enable them to adapt to a variety of application scenarios, so as to facilitate their extended use in different blockchain applications. This also further highlights the technical superiority of the MOVE language.
Figure 3: Vitalik proposed to replace the Ethereum Virtual Machine (EVM) with RISC-V
Figure 4: Sui token allocation ratio
From Figure 4, we can see that the allocation model of Sui tokens has three uses to support the construction of Sui ecological community:
The community reserves 10.65%, focusing more on the long-term construction of the Sui ecosystem, such as funding the development of DApps in the Move language, supporting community governance, or reserving funds for future expansion.
Figure 5: Sui Token Unlocking Plan
In Figure 5, you can see the unlocking plan and unlocking ratio of Sui tokens. Except for a large amount of unlocking in May 2024, the remaining tokens are gradually unlocked according to their respective allocation ratios, and the unlocking speed will gradually decrease.
At the beginning of a public chain going online, there are fewer projects and users, and a small number of tokens are released first. As the number of projects and users increases, the demand for tokens increases, and the supply gradually increases with the unlocking plan to match the demand. Its unlocking mechanism ensures that the supply and demand remain balanced and the token price is stable.
In some key projects, such as on-chain infrastructure or projects with large investments and slow returns, Mysten Labs officially operates and builds them.
For example:
Sui Name Service(SNS): Provides a service that provides human-readable names to simplify wallet address management.
SuiPlay0x1: The next generation of handheld gaming devices, supporting WEB2+Web3 games.
Walrus: Decentralized storage protocol.
Seal: Decentralized secret management service for protecting sensitive data through on-chain access control policies.
Deep Book: Centralized center limit order book (CLOB), parallel execution and low transaction fees, providing high throughput and low latency trading experience.
Mysten Labs officially operates projects, such as the Deep Book order book project, which provides liquidity and rapid matching of transactions for on-chain transactions; Sui Name Service provides domain name services for Sui chains, which is more convenient for user interaction and WEB2 companies to enter; Walrus decentralized storage protocol and Seal centralized secret management service, which facilitate builders to store information and encrypt data to protect sensitive data through these two projects.
The SuiPlay0x1 handheld gaming device, because it is related to the hardware design and mass production of the device, and needs to be adapted to games on various platforms, supports WEB2+WEB3 games. It is a project with large initial investment and slow results. Without a complete ecosystem and access to WEB2 game manufacturers, it is difficult for WEB3 game companies to develop (web3 game companies are generally small in scale), so the official has taken the lead in research and development since the beginning of the SuiPlay project preparation.
Sui offline activities aim to promote Sui blockchain technology, shorten the distance between WEB3 and WEB2, attract developers, investors and partners to join the ecosystem, enhance community cohesion and enhance brand awareness. Solve traditional problems with Sui's high performance and scalability, emphasizing education, cooperation and innovation.
The activities are diverse, including global conferences, industry summits, community gatherings, technical workshops and hackathons. The content covers Sui technology progress, Move language education, ecological project display, industry trend discussion and developer practice, helping participants to gain a deep understanding of Sui, learn development and establish connections. The activities cover North America, Asia and Europe and other regions to jointly promote the development of Sui ecology.
Sui Blockchain has taken a number of measures to ensure compliance with regulatory requirements, including Anti-Money Laundering (AML) and other legal compliance. However, Sui as a decentralized blockchain itself does not directly enforce AML or KYC, but it provides the necessary tools and infrastructure for projects built on the platform to meet regulatory standards.
According to Sui Terms of Service, users must comply with all applicable laws when using the platform, including AML, anti-terrorist financing and sanctions regulations. The terms explicitly prohibit engaging in activities that violate the law, such as money laundering, terrorist financing, or violations of OFAC sanctions. Users are responsible for their own tax compliance, including maintaining records and reporting transactions to tax authorities, and Sui may report user activities as required by law to ensure transparency.
Sui's decentralized nature makes it difficult to implement AML/KYC directly like traditional financial institutions, but by providing transparent transaction records and partner tools, it supports projects to meet regulatory needs. For example, Sui Blockchain, through its partnership with Ant Digital, uses its ZAN platform to provide KYC and AML tools to support compliant tokenization of real-world assets (RWA). ZAN, as Sui's RPC node operator, accesses Sui's infrastructure. This means that ZAN's tools can communicate seamlessly with Sui's blockchain network, enhancing its scalability and security.
In addition, Sui's terms of service allow funds to be frozen or restricted to meet legal requirements and ensure overall compliance. (If $1.46 billion is stolen from Bybit on the Sui chain, the stolen money may be frozen according to the terms).
Sui itself does not enforce KYC (know your customer) or AML (anti-money laundering) because it is a decentralized blockchain network. Research shows that Sui DeFi tools can usually be used by simply connecting to a Sui wallet, without KYC, bank card or email registration. However, when it comes to fiat currency deposits or withdrawals, such as selling Sui tokens through exchanges, multi-level KYC verification may be triggered. This shows that compliance is mainly achieved by the project or third parties themselves, and Sui provides support tools rather than direct enforcement.
Sui Chain improves compliance and isolates compliance risks through on-chain infrastructure support, compliance partners, project review, etc.
Use innovative technologies to enhance compliance. For example, Walrus, Seal and zkLogin have significantly enhanced compliance with the EU General Data Protection Regulation (GDPR). GDPR is an important data protection regulation of the European Union that aims to protect the personal data privacy of EU citizens and requires organizations to comply with strict rules in data collection, processing and storage, including data minimization, purpose limitation, storage limitation, integrity and confidentiality, and ensuring the rights of data subjects (such as access, correction, deletion, etc.).
Walrus: Supports data deletion and meets the "right to be forgotten"
Walrus is a decentralized storage protocol designed for processing large binary files (blobs). It allows sensitive personal data to be stored on independent sub-chains for quick deletion, meeting the GDPR's "right to be forgotten" (Article17GDPR).
Seal: Secure management of sensitive data
Provides secure storage and access control for sensitive data. Seal ensures that personal data is protected during storage and processing through its security mechanism, in line with GDPR's requirements for data security and privacy.
zkLogin: Privacy-preserving authentication, supporting data minimization
zkLogin is a native feature of Sui that allows users to log in to decentralized applications (DApps) using familiar Web2 credentials (such as Google, Facebook) without having to manage private keys or seed phrases. By not disclosing user credentials and using zero-knowledge proofs, it supports the GDPR's data minimization principle (Article5GDPR). It reduces the amount of personal data stored on the chain while ensuring that user privacy is protected. In addition, the design of zkLogin also avoids the complexity of traditional private key management and reduces the risk of data leakage.
Sui Chain cooperates with third parties such as Chainalysis to improve compliance through its community-driven Sui Guardian program. Sui Guardian tracks scams and phishing websites, and Chainalysis's analysis tools are able to monitor and analyze on-chain transactions, identifying addresses or patterns associated with known illegal activities. By analyzing transaction patterns, Chainalysis can identify potential victims of phishing attacks and help exchanges and users take preventive measures. This helps Sui comply with AML and KYC regulations worldwide, such as the European Union's Fifth Anti-Money Laundering Directive (5AMLD) and the United States' Bank Secrecy Act (BSA).
Through various tools, developers are helped to self-discipline and ensure compliance, such as for geographic restrictions. For example, Sui has partnered with Netki to launch DeFi Sentinel, a compliance oracle that provides developers with automated compliance tools, including real-time KYC/AML (know your customer/anti-money laundering), wallet screening, and financial transaction monitoring. These tools can help dApp verify the location of users and ensure that only users in compliant regions can access services.
For example, the Doubleup gambling project is only open to users in gambling compliant regions.
In the blockchain ecosystem, public chains usually provide services as the basic layer, while application development is mainly completed by the project party, including Defi, DApp, DePin, etc. Users interact through smart contracts written by the project party, and the stakeholders are mainly the project party and users (contract participants). At present, the parties to most legal disputes and judicial precedents are the project party and its participants. Unless there are major vulnerabilities in the public chain that directly cause user losses, the public chain is rarely listed as a defendant.
For example, Sui recently announced a partnership with xMoney and xPortal to launch a digital Mastercard that supports SUI tokens in Europe. As a technical platform, Sui itself is mainly responsible for the construction of infrastructure and asset ecology. The payment side is undertaken by the licensed institution xMoney, and the application side user experience is managed by xPortal.
From the practice of Sui Chain, we can see that compliance has been taken as an important development direction since the beginning of the design, and has been integrated into the top-level design of the public chain.
The layout of the public chain should start from the overall perspective and adapt to the future development direction from the underlying logic. As a public chain project, development planning cannot be done from the perspective of a single project. Diverse application scenarios and development trends should be considered and the layout should be made in advance.
Governing the chain is like governing a country. Only when there is complete infrastructure construction on the chain, taking the lead in developing high-investment projects, and reasonably allocating incentives, can more developers and users be attracted, and a rich chain ecology can be gradually developed.
As a rising star in the public chain field, Sui Chain has successfully found a balance between compliance and development through its unique technical architecture and well-thought-out operational strategy.
Compliance has been integrated into the top-level architecture since its design, which not only meets the requirements of global supervision, but also builds a vibrant and robust ecosystem through community incentives, key project construction and offline activities. Its specific measures at the user compliance, partner support and project level, such as cooperating with third parties to provide KYC/AML tools and using innovative technologies to support GDPR compliance, demonstrate its foresight and execution in responding to regulatory challenges.
The practice of Sui Chain proves that compliance is not only a necessary condition for public chains to cope with external pressure, but also a key bridge to promote the deep integration of blockchain technology and the real world. Compliance is not only for regulatory services, but also for users on the chain and for everyone in the real world.
Although the Web3 world advocates "The code is the law", the excessive jungle law is regulated by various countries and rejected by mainstream society, which will make Web3 stay in the virtual world. Only by compliance can we truly cross the boundary between virtual and reality, bring safer and more convenient services to global users, and unleash its revolutionary potential.
Considering how to combine Web3 with the real world is the starting point and end point of compliance.
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