3.7 Decentralized Identity & Credential Management

LQDTY introduces a comprehensive Decentralized Identity and Credential Management system, enabling users to securely verify their identity, manage credentials, and interactwith blockchain applications while preserving their privacy. This system ensures compliance with global regulations, including AML (Anti-Money Laundering) and KYC
(Know Your Customer) requirements, without compromising user data security. Through the use of Decentralized Identifiers (DIDs), Verifiable Credentials (VCs), and Zero-Knowledge Proofs (ZKPs), LQDTY enables privacy-preserving identity verification, secure credential storage, and decentralized authentication methods. This section explores the architecture, functionalities, and benefits of LQDTY's Decentralized Identity (DID) framework.

3.7.1 Decentralized Identifiers (DIDs)

Decentralized Identifiers (DIDs) are self-sovereign digital identities that allow users to own and control their identity without relying on a centralized authority. LQDTY's DID system enables users to authenticate themselves on the blockchain without exposing personal information.

Key Features of LQDTY's DID System:

User-Owned and Self-Sovereign: Users generate and manage their own DIDs without requiring approval from centralized entities.
Immutable and Secure: DIDs are stored on the blockchain, ensuring tamper-proof identity verification.
Interoperable: Compatible with global identity frameworks such as W3C standards, Web3 digital identity solutions, and financial regulations.

DIDs enable users to interact with blockchain applications, prove their identity, and access services requiring identity verification (such as DeFi lending, institutional finance, and tokenized asset trading).

3.7.2 W3C Verifiable Credentials (VCs)

LQDTY supports W3C-compliant Verifiable Credentials (VCs) to allow users to store and share verified identity credentials in a trustless and decentralized manner.

Key Features of LQDTY's DID System:

Credential Issuance: A trusted entity (such as a bank, government, or enterprise) issues a Verifiable Credential to a user's DID.
Credential Storage: The user stores the credential in a secure enclave, preventing unauthorized access.
Verification via Zero-Knowledge Proofs: Users can prove they possess a credential (e.g., KYC verification, age verification, or accreditation status) without exposing sensitive data.

Examples of Verifiable Credentials:

KYC Compliance Credentials: Users can prove they are KYC-verified without revealing their personal details.
Accredited Investor Status: Investors can verify whether they qualify under 506(c) rules, Qualified Institutional Buyers (QIB), or Qualified Purchasers (QP) without disclosing their financial records.
Enterprise Access Control: Companies can issue credentials for employees, contractors, and business partners to authenticate and access blockchain-based services.

3.7.3 Private Key Storage in Secure Enclave

LQDTY implements a hardware-secured enclave to enhance security for storing private keys, credentials, and authentication data. This solution prevents unauthorized access and key theft while maintaining full user control over identity management.

Key Features of LQDTY's Secure Enclave:

Encrypted Key Storage: Private keys are securely stored and never exposed to external threats.
Hardware-Based Protection: Secure enclave technology prevents phishing attacks,
keylogging, and unauthorized credential access.
Biometric Authentication for Access: Users can optionally authenticate using biometric key shard verification, adding a security layer.

This approach ensures that private keys and identity credentials remain protected, reducing the risk of security breaches.

3.7.4 Credential Issuance & Enrollment Flow

LQDTY supports a decentralized credential issuance process, ensuring efficient, privacypreserving identity verification.

Credential Issuance Process:

User Requests Credential: The user submits a verification request to an approved issuer (e.g., KYC provider, enterprise, or government agency).
Issuer Verifies Identity: The issuer validates the user's identity using regulatorycompliant processes.
Credential is Issued & Signed: The verifiable credential is cryptographically signed and added to the user's DID profile.
The User Stores the Credential in a Secure Enclave, which allows controlled disclosure when needed.

This privacy-centric credential flow ensures trust and security while allowing users to maintain full control over their data.

3.7.5 Transfer Flow & On-Chain Transactions

Users can share and transfer credentials securely on-chain without exposing sensitive information.

Decentralized Verification Flow:

User Selects Credential for Verification: The user chooses a specific credential (e.g., KYC status, investor accreditation) to share with a service provider.
Zero-Knowledge Proof (ZKP) Verification: The blockchain validates the credential without revealing personal details.
Access Granted or Transaction Approved: The smart contract authorizes the user's request based on the verified credential.

This method ensures that services can verify user identities trustlessly without requiring centralized databases or intermediaries..

3.7.6 Ownership & Transfer Logic

LQDTY enables users to transfer ownership of digital credentials, ensuring seamless management of identity-linked assets.

How Ownership and Transfer Work:

Non-Transferrable Credentials: Certain credentials (e.g., KYC verification) are bound to the user's identity and cannot be transferred.
Transferable Credentials: Some credentials, such as corporate access permissions or digital licenses, can be securely transferred to another entity using blockchain verification
Revocation & Expiry Mechanisms: Issuers can revoke expired or invalid credentials, ensuring real-time compliance and security updates.

This model guarantees full identity ownership, allowing users to manage and share their credentials without centralized authorities.