Analysis Report] Analysis of the impact of each mainnet following the enforcement of global virtual asset regulations (clarity bill)

  1. Introduction: Clarity bill and institutionalization of virtual asset market

The CLARITY Act, which is currently being discussed in the U.S. Congress ahead of final passage, is a virtual asset market structure bill that will forcefully incorporate the blockchain market, which had been a lawless area, into the institutional financial network. This report examines the core standards required by this bill, analyzes the crisis faced by existing networks that were not prepared for them, and the unique position enjoyed by Pi Network, which has fully prepared for these standards from the beginning.

  1. Four major on-chain KYC/AML legal standards required by the Clarity Act

Section 110 of the Clarity Act explicitly designates virtual asset brokers, dealers, exchanges, etc. as ‘financial institutions’ under the U.S. Bank Secrecy Act (BSA). Accordingly, the four core legal standards that blockchain networks and service providers must meet are as follows.

• ① Mandatory formal Customer Identification Program (CIP): Simple email authentication or arbitrary identity verification is completely prohibited by law. All virtual asset businesses that trade tokens must collect and verify customer identities and keep records at the same level as traditional banks, and must have an official system that checks them against the government's surveillance list in real time.

• ② Mandatory Suspicious Transaction Reporting (SAR) system: On-chain movement patterns of assets must be monitored in real time. If a specific wallet exceeds the standard transaction amount suspected of money laundering, hacking fund bypass, or terrorist financing, it is essential to have a system architecture that can automatically detect this and submit a Suspicious Activity Report (SAR) to the U.S. Treasury's Financial Intelligence Unit (FinCEN).

• ③ Blockchain porting of Travel Rule: When assets are moved, the identity information of the sender and receiver must be transmitted together through a blockchain transaction or related financial channel. This means that on-chain traceability is enforced, which can trace back the actual owner of the wallet address.

• ④ Risk management framework for DeFi intermediaries: Although the bill exempts smart contract developers themselves (Section 604), it requires strong anti-money laundering risk management standards for all institutions and intermediaries that interact with anonymous decentralized protocols or virtual asset mixers.

• Background and contradictions in mandatory introduction of zero-knowledge proof (ZKP) technologyWhen processing on-chain transactions in the Clarity Act framework, the introduction of zero-knowledge proof (ZKP) technology is virtually mandatory to simultaneously meet financial regulations while avoiding violations of personal data protection laws (GDPR, etc.). Zero-knowledge proof is a core regulatory compliance technology that “does not expose actual personal information (passport number, name, etc.) to the blockchain, and only submits mathematical proof values ​​of passing regulations to the network.” However, existing networks that try to introduce this technology late will face fatal regulatory contradictions and limitations.

  1. A pile of ‘ineligibility reasons’ and technological bottlenecks in existing networks

Most existing mainstream mainnets, such as Ethereum and Solana, were designed with the idea of ‘permissionless, where anyone can participate anonymously.’ Therefore, if this bill is passed, we will experience the following fatal technical difficulties and chaos.

• Technical bottleneck (ZK operation overload): In order to belatedly meet regulations, zero-knowledge proof (ZKP)-based KYC technology is being introduced in wallets, but since complex cryptographic mathematical operations must be verified on the network for each transaction, the system speed is significantly slowed down and computer fees (gas fees) skyrocket, causing chaos.

• Contradiction between storage obligations and privacy: If data is obscured or erased with a zero-knowledge proof (ZKP) on-chain to prevent personal information leaks, it is a fatal dilemma as it violates the legal obligation to “submit and store original identity data (for at least 5 years) in the event of a crime” required by the Clarity Act and the Treasury Department.

• Market fragmentation and liquidity collapse: As liquidity is split between compliant whitelist asset pools and unregulated anonymous pools, trading volume in the existing DeFi ecosystem will plummet and market attractiveness will decline significantly.

  1. Pi Network’s unrivaled preparedness and exclusive position

On the other hand, Pi Network built its infrastructure from the beginning with the philosophy of 'Law is Code' in anticipation of strict control by regulatory agencies, so after the law is passed, it will monopolize all market preemption effects.

• Dominating the 'clean whitelist' with tens of millions of users: While other mainnets are struggling to stop services and check users' identities and compare them with the watch list, Pi immediately operates tens of millions of verified users and wallets that have already passed independent global KYC as basic infrastructure.

• Perfect implementation of two-track identity architecture: Pi does not destroy data irresponsibly. We have preemptively completed a system that thoroughly stores the original identity through a secure off-chain separate custody system that meets legal storage obligations, while approving transactions in the form of encrypted certificates without personal information leakage on-chain. The contradiction between law and technology has been resolved in advance.• Securing the driving force with the global regulated financial network: We completed protocol advancement (Protocol 23 and Soroban smart contract infrastructure) by considering not only the standards of the US law but also the European MiCA (Virtual Asset Markets Act) standard, which is considered the most sophisticated in the world.

  1. Conclusion and future prospects

The enforcement of the Clarity Act will be a disaster for unprepared existing blockchain networks due to technological bottlenecks and regulatory violations. On the other hand, when large global financial capitals such as BlackRock or JP Morgan are looking for a legitimate blockchain ecosystem, the Pi Network, which fully meets bank-level CIP/AML requirements from the beginning and has a large clean user base, will stand out as the only safe and attractive alternative.

Ultimately, the thorough KYC system that Pi Network has maintained for a long time will go beyond the simple authentication stage and act as an unrivaled divine move that will completely secure market hegemony in the new global virtual asset regulation framework.

Analysis Report: Analysis of the Impact of the Global Virtual Asset Regulations (Clarity Act) on the Mainnet

  1. Introduction: The Clarity Act and the institutionalization of the virtual asset market

The Clarity Act, currently under discussion in the U.S. Congress, is a virtual asset market structure bill that forcibly incorporates the lawless blockchain market into the institutional financial network. This report examines the key standards required by this bill, analyzes the crises faced by existing networks that have not prepared for them, and the unique position that Pi Network, which has been perfectly prepared for these standards from the beginning, will enjoy.

  1. The four major on-chain KYC/AML legal standards required by the Clarity ActSection 110 of the Clarity Act explicitly designates virtual asset brokers, dealers, and exchanges as ‘financial institutions’ under the Bank Secrecy Act (BSA). Accordingly, the four key legal criteria that blockchain networks and service providers must equip are as follows.

1 Mandatory Official Customer Info Program (CIP): Simple email authentication or arbitrary identity verification is legally prohibited. All virtual asset service providers trading tokens must collect and verify customer identities and keep records at the level of traditional banks, and must have an official system that compares them with government surveillance lists in real time.

2 Mandatory Suspicious Transaction Reporting (SAR) System: On-chain movement patterns of assets must be monitored in real-time. A system architecture that can automatically detect and submit a Suspicious Transaction Report (SAR) to the Financial Intelligence Unit (FinCEN) under the U.S. Treasury Department is essential if a particular wallet exceeds a standard transaction amount suspected of money laundering, hacking fund evasion, or terrorist financing.3 The Travel Rule's blockchain porting: When an asset moves, the identity information of the sender and receiver must be transmitted together through a blockchain transaction or related financial channel. In other words, an on-chain tracking function that allows you to trace back the actual owner of your wallet address is enforced.

4 DeFi-linked intermediary risk management system: The bill exempts smart contract developers themselves (Section 604), but requires all institutions and intermediaries interacting with anonymous decentralized protocols or virtual asset mixers to implement strong anti-money laundering risk management standards.

The background and contradictions behind the mandatory adoption of zero-knowledge proof (ZKP) technology

Under the Clarity Act system, the introduction of zero-knowledge proof (ZKP) technology is virtually mandatory to avoid violations of personal information protection laws (such as GDPR) while simultaneously meeting financial regulations. Zero-knowledge proof is a core regulatory compliance technology that "does not expose actual personal information (passport number, name, etc.) to the blockchain, but only submits mathematical proof that it has passed the regulations to the network." However, existing networks that belatedly attempt to adopt this technology face fatal regulatory contradictions and limitations.1. A mass of ‘ineligibility reasons’ and technology bottlenecks in existing networks

Most existing mainstream mainnets, such as Ethereum and Solana, were designed based on the concept of "permissionless" where anyone can participate anonymously. Therefore, if this bill passes, it will face the following critical technical challenges and chaos.

Technical bottleneck (ZK computation overload): To meet regulations belatedly, zero-knowledge proof (ZKP)-based KYC technology is being introduced into wallets, but complex cryptographic mathematical operations must be verified on the network for each transaction, significantly slowing down the system speed and causing major chaos with soaring computer fees (gas costs).

The contradiction between the obligation to keep and privacy: To prevent personal information leaks, covering data or erasing the original with zero-knowledge proof (ZKP) on-chain can lead to a fatal dilemma, violating the Clarity Act and the Treasury's legal obligation to "submit and store original identity data (for at least 5 years) in the event of a crime."

Market fragmentation and liquidity collapse: As liquidity is fragmented between a pool of compliant whitelist assets and an anonymous pool that is not subject to regulation, the trading volume of the existing DeFi ecosystem plummets, significantly reducing its market appeal.1. The unique readiness and exclusive position of the Pi Network

On the other hand, because the Pi Network anticipated the strict control of regulatory agencies from the outset and built its infrastructure with the philosophy of 'Law is Code,' it monopolizes all market preemptive effects after the law passes.

Securing a 'clean whitelist' with tens of millions of users: While other mainnets are scrambling to verify users' identities and compare them with surveillance lists, Pie immediately activates tens of millions of verified users and wallets that have already passed its own global KYC, using its basic infrastructure.

The perfect implementation of a two-track identity architecture: Pi does not irresponsibly destroy data. We proactively completed a system that allows for the thorough preservation of identity originals through a secure off-chain separate consignment system that meets legal storage obligations, while also approving transactions in the form of encrypted certificates that do not cause personal information leakage on-chain. It is a way to resolve the contradiction between law and technology in advance.Securing the driving force behind the global regulatory financial network: We have completed protocol advancement (Protocol 23 and Sorovan smart contract infrastructure) by considering not only the standards of U.S. legislation but also the European MiCA (Virtual Asset Market Act) standards, which are considered the most sophisticated in the world.

  1. Conclusions and Future Prospects

The enactment of the Clarity Act will be a 'disaster' for existing blockchain networks that are not prepared, involving technological bottlenecks and regulatory violations. On the other hand, when global financial giants like BlackRock or JP Morgan seek a legitimate blockchain ecosystem, a pie network that perfectly meets bank-level CIP/AML requirements from the start and has a large number of clean users will emerge as the safest and most attractive alternative.

Ultimately, the thorough KYC system that the Pi Network has maintained for a long time will go beyond simple authentication and act as a unique stroke of genius that will allow it to fully seize market hegemony in the global virtual asset regulatory framework.