ARC-100 sets best practices for cross-chain operations

Voting for ARC-100 closed on June 24, with the measure passing (484 for, 54 against, 46 abstain), which means the Aleo Network will enact a set of guidelines for bridges, validators, and ecosystem best practices. The passing of ARC-100 is a foundational moment not only for the future of the Aleo ecosystem, but also for our ongoing efforts to create secure, transparent, and compliance-friendly cross-chain operations. The Foundation is committed to minimizing illicit actors in our ecosystem while pushing the boundaries of what zero-knowledge technology can achieve. 

Sometimes this means erring on the side of caution as we optimize our approach to thwart illicit actors. We are doing this all while maximizing the aspects of decentralization that the foundation firmly believes in. We also recognize that no system is foolproof; this is the beginning of our journey to create a safer ecosystem.

What is ARC-100?

ARC-100 is a collection of best practices and guidelines we set forth with the intention of mitigating the misuse of the Aleo Network by illicit actors. These guidelines apply to bridging protocols to/from the Aleo Network and the Validators that operate the Aleo Network. 

In brief, ARC-100 establishes the procedures on how bridging protocols on the Aleo Network should handle wallet addresses tied to documented bad actors in the ecosystem, transaction limits and dynamic timelocks, as well as how to limit their exposure to certain prohibited locations. It also suggests a possible approach for enforcing these guidelines by encouraging validators to stay vigilant and take the necessary precautions. 

The Aleo Network Foundation has consulted with experts in the field, industry groups, and our community to inform this proposal. These suggested measures would ensure the Aleo Network sets off on the right foot with an ecosystem that’s sustainable, compliance-forward, and credible as it evolves and grows.

Keep in mind that these guidelines are our recommended approach as stewards of the network, and an example of the type of good behavior we want to model. It is up to every ecosystem participant to decide on their specific approach to tackle these best practices, in addition to any others that might fit their situation.

The discussion and reasoning for passing ARC-100

We were thoroughly impressed with the quality of discussion happening in our governance channel on Discord, with valid points being raised on both sides. Even if you didn't agree with the proposal, rest assured that your feedback will help shape the eventual execution of this ARC.

Here are some of the most interesting points:

The measure should uphold the values of the web3 community

Community members discussed how security rules should be implemented by ecosystem participants to ensure the overall security of the network while upholding web3 values, specifically decentralization. In particular, the community was understandably concerned with how to ensure participants were not unfairly barred from interacting with the network. The community suggested that the Foundation provide regular paths for updates and feedback as well as user support.

The Aleo Foundation is here to guide ecosystem participants towards a shared value of using the network for the good of society, which means it’s essential for everyone to have and enforce rules around risk management. We are all navigating the thin line between the ethos of decentralization and open access, while making sure we’re compliant and compatible with existing systems. 

The measure relies on US-based regulations, such as OFAC

Several community members raised the point that using OFAC to determine which users cannot interact with the network creates a US-centric bias for governing the network.

ARC-100 seeks to create a process by which existing laws can be applied. These laws may differ depending on jurisdiction, but operators of the network will likely be required to follow the laws in their respective jurisdictions. OFAC is one of several sources under consideration, and additional lists could be considered (including FATF, which coordinates AML policies and enforcement for the G7). 

The measure needs to be open to change

We set these guidelines forth to create transparency and accountability across the entire network, and we expect them to evolve over time. Keep in mind that these aren’t hard-coded rules, but strongly encouraged suggestions that we hope developers in our ecosystem will take into account. As the regulatory landscape evolves, we’ll stay on top of the discussion and help shape what the next iteration of ARC-100 looks like.

Why is ARC-100 notable? 

ARC-100 represents a significant step forward towards a more transparent and compliance-friendly landscape for the Aleo Network. The Foundation is committed to being a thoughtful participant in the network; this attempt at developing a safer ecosystem is important for us. We believe that this type of ecosystem will help catalyze the positive use of our technology by a wide-range of participants.

We were inspired by the discussion led by community members, experienced validator operators, and compliance-related organizations. Each of these stakeholders played a critical role in providing their necessary input. 

The community provided a very important voice into how they saw fit to use and build on the Network under the guise of the pressing and important considerations detailed by ARC-100. The Aleo Network has also engaged in solid advisory guidance from experienced validator operators that have seen, operated, and engaged many other networks in this manner. 

Finally, the compliance-related organizations that have been evolving to support the ideological path for permissionless systems have been fundamental in developing the right scope and progress for how to manage desired behaviors in ecosystems such as Aleo’s. 

In suggesting these guidelines the Foundation is seeking to set a precedent for a community-fueled and regulatorily-aligned basis with which to kickstart the ecosystem’s growth for the coming years.

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