Ethereum-focused blockchain project Kinto disclosed it has raised $5 million in fundraising rounds this year to develop a layer-2 network that's fully compliant with anti-money-laundering laws, aiming to connect financial institutions and real-world assets with decentralized finance (DeFi) rails.

The project is built using the OP Stack, which is a set of software tools created by the developer OP Labs that companies can use to easily spin up their own customized layer-2 networks. The technology derives from Optimism, the second-biggest layer-2 network atop Ethereum. Coinbase, the big U.S. crypto exchange, famously relied on OP Stack to build its own layer-2 blockchain, Base.

Kinto secured $1.5 million in a pre-seed investment earlier this year from Kyber Capital Crypto, according to a press release on Tuesday. It received another $3.5 million recently in a round led by Kyber Capital Crypto, Spartan Group and Parafi. SkyBridge Capital, Kraynos, Soft Holdings, Deep Ventures, Modular, Tane and Robot Ventures also participated in the round.

The Kinto network features native know-your-customer (KYC) checks – a type of anti-money-laundering prevention – and investor accreditation mechanism to help onboard regulated financial institutions – solving a major headache for them if they want to access blockchain-based protocols, Kinto co-founder Alan Keegan said in an interview with CoinDesk.

According to the press release, Kinto becomes the "first KYC'd layer 2 (L2) blockchain capable of supporting both modern financial institutions and decentralized protocols."

Only KYC'd entities can transact on the network, so this way Kinto can eliminate anonymous exploits and scams that proliferate on DeFi platforms, Keegan added. The network also offers insurance and developer incentives to build applications from transaction fees.

"We believe that a fully KYC'd layer 2 on top of Ethereum is an inevitability, and we have extremely strong conviction that Kinto is the right team to execute this vision," Alex Klokus, co-founder and managing partner at Kyber Capital Crypto, said in a statement.

Kinto plans to open the onboarding and KYC process later this month.

Decentralized Finance DeFi KYC Optimism Ethereum Real World Assets Layer 2s

Krisztian Sandor

Krisztian Sandor recently graduated from NYU's business and economic reporter program as a Fulbright fellow and worked with Reuters and Forbes previously. Originally from Budapest, Hungary, he is now based in New York. He holds BTC and ETH.