What is a Identity Layer?
Quick Definition
An identity layer is the system used to verify and manage the identities of users interacting with a protocol or financial service.
Full Definition
Identity is one of the main challenges of bringing financial services on-chain. Public blockchains are pseudonymous, wallets are identified by addresses rather than real-world identities. While this is one of the strengths of blockchain technology, it also creates challenges for services that must comply with financial regulations, prevent fraud, or operate in regulated markets.
An identity layer solves this by providing a way to associate wallet addresses with verified identities, typically through KYC processes. The identity verification process happens off-chain, while the resulting status, credential, or whitelisted address can be used on-chain to gate access to certain services or features.
Why identity matters for stablecoins
Stablecoins operating in regulated markets require a way to verify the identity of users acquiring or redeeming tokens directly with the issuer. This is a regulatory requirement and one of the key characteristics that distinguishes regulated stablecoin issuers. The most effective identity layers apply verification where it is needed while preserving the permissionless nature of on-chain transfers between holders. This balance allows compliant stablecoins to operate within regulatory frameworks while remaining compatible with the broader blockchain ecosystem.
Steady's identity layer
Steady's identity layer applies at the primary market. Qualified institutional investors who acquire or redeem STDY directly with Steady must complete KYC requirements. Once STDY is held in a wallet, it can be transferred freely on supported networks, and the identity layer does not apply to peer-to-peer transfers between holders. This approach combines regulatory compliance at the point of issuance and redemption with the flexibility of permissionless on-chain transfers.
Related Terms
AML
ReadAML (Anti-Money Laundering) refers to the laws, regulations, and procedures designed to prevent the use of financial systems for laundering the proceeds of crime.
KYC
ReadKYC (Know Your Customer) is the process by which financial institutions verify the identity of their customers as part of regulatory compliance.
MiCA
ReadMiCA (Markets in Crypto-Assets Regulation) is the European Union's comprehensive regulatory framework for crypto-assets, designed to provide legal clarity, consumer protection, and market integrity across EU member states.
Permissionless
ReadPermissionless means anyone can access, use, or build on a system without needing approval from a central authority.
Redemption Infrastructure
ReadRedemption infrastructure refers to the systems, processes, and partners that enable holders to exchange their tokens for the underlying value.
Other Glossary Items
Learn about common and essential terms related to Steady and other stablecoin protocols.
Algorithmic Stablecoin
ReadAn algorithmic stablecoin attempts to maintain its value through automated rules that adjust token supply based on market demand, rather than holding equivalent reserve assets.
APY
ReadAPY, or Annual Percentage Yield, is the standardized rate of return an asset generates over a year, including the effect of compounding.
Arbitrum
ReadArbitrum is a Layer 2 blockchain network built on top of Ethereum, designed to offer faster and cheaper transactions while inheriting Ethereum's security and infrastructure.
Asset Backing
ReadAsset backing refers to the real-world or on-chain assets held by the issuer to support the value of every token in circulation.
Asset Locking
ReadAsset locking refers to restricting access to funds for a defined period or condition, during which they cannot be transferred or used.
Asset Segregation
ReadAsset segregation is the practice of keeping client or backing assets separate from the issuer's operational funds, protecting them from the issuer's other obligations.
Audit
ReadAn audit is an independent examination of a protocol's code, reserves, or operations by qualified third parties to verify accuracy and compliance with stated claims.
Backing
ReadBacking refers to the assets or mechanisms that support a stablecoin's value and help it maintain its intended reference value.
Blockchain Network
ReadA blockchain network is the system of connected participants and infrastructure that validates, records, and maintains data on a specific blockchain.
Blockchain
ReadA blockchain is a distributed digital ledger that records transactions across a network of computers in a secure, transparent, and tamper-resistant way.
Bridge
ReadA bridge is a mechanism that enables the transfer of assets or data between different blockchain networks.
Clarity Act
ReadThe Clarity Act is a proposed US legislative framework intended to clarify the regulatory treatment of digital assets, defining when they should be treated as securities versus commodities.
Collateralization / Over-collateralization
ReadCollateralization refers to the ratio between the value of assets held in reserve and the value of tokens issued. Over-collateralization means holding more in reserves than the value of tokens issued.
Composability
ReadComposability refers to the ability of different protocols, contracts, and tokens on a blockchain to interact and combine with each other seamlessly.
Counterparty Exposure
ReadCounterparty exposure refers to the risk that another party, such as a bank, custodian, broker, or service provider fails to fulfill its obligations, potentially affecting the assets or funds it holds.
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