Compliance

There are two main areas we take special care in with regards to compliance: pool access and asset storage. You will find below more information on each of these and how we deal with them.

Permissioning

As we are dealing with securities when doing RWA pools, we must ensure to comply with all relevant Anti-Money Laundering (AML) regulations, which dictate who is allowed to hold or trade securities. To accommodate for that, we must ensure only eligible parties ever hold RWAs on Mystic.

Our solution to this is to set access rules to a certain pool individually per pool, depending on its assets' requirements (e.g. only non-US investors can access a specific pool). To support all asset classes whilst still making markets as permissionless as possible, three levels of access are possible:

• Permissionless - no one needs to KYC/KYB, as the asset is freely transferable.

• Semi-permissioned - only borrowers and liquidators must KYC/KYB - if there are liquidators in the pool and we know lenders will never touch the asset, then supplying may be permissionless.

• Permissioned - all participants must KYC/KYB, due to asset or participants' requirements.

Much like Aave manages permissions via roles, so does Mystic. This process is described here. Mystic ties access to each market to these roles, which are attributed based on KYC/KYB information upon user registration or partner KYC whitelist integration.

Custody

Since Mystic is not a registered broker, we must keep all securities with a custodian. This is also better for borrowers from a risk perspective, as they know their assets are being safekept with a custodian during their interaction with the protocol. Our approach is quite simple and elegant - we have integrated our protocol with a custodian, such that whenever an RWA is locked/deposited on our pools, it is sent to a custodian for safekeeping. We do, however, also enable assets to be remain on our smart contract. This combination of centralisation and decentralisation is one of the things that makes Mystic so appealing and which makes us so uniquely positioned to bridge TradFi and DeFi.