Understanding Your Issuer: This Technology Fights Counterfeit Coins, Beginning with USDC and PYUSD

Bluprynt has recently finalized a pilot focusing on reducing counterfeit cryptocurrencies, embedding a “Know Your Issuer” framework into stablecoins from Circle and PayPal, the crypto compliance solution provider shared with Decrypt on Wednesday.

Led by Georgetown Law Professor Chris Brummer, the firm believes that counterfeit tokens are resulting in at least $1.6 billion in losses for crypto users annually. The proposed solution aims to mitigate this by associating issuer credentials with assets on-chain. 

“Counterfeit tokens present a problem that extends beyond retail investors, although it’s clear that they are affected,” he remarked. “Creating a token while someone else manufactures a counterfeit can severely hinder your operations as it undermines your brand.”

Bluprynt’s framework innovatively aligns with KYB, or Know Your Business. This due diligence process verifies a business’s legal standing and ensures compliance with anti-money laundering regulations while creating verified identities.

Under Know Your Issuer, or KYB, verified identities are linked directly to the digital asset. Although this technology has potential applications in retail investor digital wallets, it also targets institutions, according to Brummer.

“Rather than relying on traditional accounting systems or Web2 methodologies, we can essentially craft a verifiable digital identity right at the issuance stage,” he noted.

The conclusion of the pilot coincides with new guidelines from the U.S. Office of the Comptroller of the Currency regarding the safeguarding of digital assets, asserting national banks’ ability to manage and outsource crypto services as of May.

“Bluprynt’s KYI framework signifies a significant advancement for the integrity of digital assets,” remarked Christopher Giancarlo, a Paxos board member and former CFTC chair, in a statement.

While institutions have their compliance needs, these can at times clash with the unrestricted nature of decentralized finance (DeFi). Some supporters of crypto believe that adhering to regulations necessitates a certain level of centralization for effectiveness.

“Institutional DeFi may sound contradictory,” Brummer stated. “However, we must find a balance that preserves the integrity of the DeFi framework without altering market structures in favor of greater centralization.”

There’s nothing preventing anyone from creating a meme coin that looks like a stablecoin such as USDC via platforms like Pump.fun. Wallets like Phantom would make clear that its price isn’t dollar-pegged, though its appearance might be indistinguishable.

Circle’s USDC and PayPal’s PYUSD rank among the top stablecoins in market capitalization, with values of $69 billion and $1.1 billion, respectively, as reported by the crypto data aggregator CoinGecko. PayPal’s stablecoin is issued by Paxos.

Bluprynt recently implemented KYI with the Solana Attestation Service (SAS), which facilitates the publication of attestations about tokens and addresses on-chain. By leveraging SAS for publishing KYI credentials, issuers can enable token validation for wallets, blockchain explorations, and other on-chain utilities, Bluprynt indicated.

Although Wall Street dislikes counterfeit tokens, Hollywood encounters similar issues. Following the launch of his own meme coin, rapper Kanye West reported that his Instagram was hacked on Tuesday, promoting a fraudulent YZY token of the same name.