7. Fraud Prevention

7.1 How Reputation Prevents Fraud

Merely making the protocol fully anonymous would do little to preclude the possibility of users misusing the platform. However, combined with the strict reputation system for on-ramp transactions, the opportunity for a buyer to commit impersonation fraud is sharply constrained, especially given the limited amounts they can transact with a new or low on-chain reputation.

It is worth noting that centralized exchanges routinely face difficulties in implementing a viable KYC procedure for their users. The Protocol's non-custodial KYC prevents fraud while retaining the benefit of anonymity for the user if no illicit activity surfaces over the course of their interaction with the platform.

7.2 Anti-Money Laundering Through Transaction Limits

The reputation mechanism and the transaction limits tied to reputation tiers materially reduce money-laundering risk. Low per-tier limits and the threat of reputational banning constrain the scope for laundering non-trivial amounts. These controls are one layer of a broader compliance approach rather than a complete safeguard.

7.3 Merchant Accountability

The selected nature of the merchants fulfilling individual orders, via the Proof-of-Credibility algorithm, means a serious disincentive and unlikelihood for any merchant to attempt a fraudulent transaction.

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