3.8 web3fabric

LQDTY integrates web3fabric, a next-generation decentralized identity and credentialing layer that enhances user authentication, transaction privacy, and compliance while preserving decentralization. By leveraging Zero-Knowledge Proofs (ZKPs), Decentralized Identifiers (DIDs), and cryptographic verification methods, web3fabric enables secure, scalable, and trustless identity verification across the LQDTY blockchain.

3.8.1 Enrollment Flow

Steps in the Enrollment Proces:

1. User Registration:
   • Users register a Decentralized Identifier (DID) on LQDTY.
   • A biometric key shard can be linked for additional security, ensuring tamperproof identity verification.
2. Issuer Validation:
   • A trusted credential issuer (such as a KYC provider, financial institution, or government entity) verifies user credentials and issues a Verifiable Credential (VC).
3. ZKP-Based Compliance Verification:
   • Users prove compliance (e.g., KYC, AML, accredited investor status) without revealing sensitive data.
   • The Zero-Knowledge Proofs ensure that only verification results are shared with dApps, not user identity details.
4. Secure Storage & User Control:
   • Credentials are stored in the user's secure enclave, preventing unauthorized access.
   • Users maintain full control over how and when credentials are shared.

Outcome: The user is successfully enrolled under web3fabric with a secure on-chain hash referencing their off-chain compliance data.

3.8.2 Transfer Flow (Version 1)

LQDTY's web3fabric enables privacy-preserving transfers, allowing users and enterprises to exchange digital assets, identity credentials, and authentication proofs without exposing sensitive data.

Key Features of the Transfer Flow:

1. Decentralized Identity Authentication:
   • Users verify their identity using DIDs and ZKPs, ensuring that transactions meet AML/KYC compliance standards.
2. Zero-Knowledge Proof Validation for Secure Transfers:
   • Instead of revealing personal details, ZKP-based smart contracts validate credentials before allowing transactions.
   • Example: A user can prove accredited investor status without sharing their financial data when participating in regulated DeFi offerings.
3. Gas-Free User Transactions with Credential-Based Access:
   • Authorized users can transact without gas fees, leveraging sponsored gas mechanisms.
   • Smart contracts validate transaction authorization based on identity credentials.
4. Fraud Prevention & Compliance-Ready Transfers:
   • Real-time transaction monitoring detects fraudulent activities and ensures compliance.
   • The ZKP-based transaction layer ensures secure data handling without central oversight.

This innovative transfer process enhances privacy, security, and efficiency while maintaining compliance with decentralized principles.

3.8.3 Why ZKPs Are Beneficial — and How They Make LQDTY Unique

Zero-Knowledge Proofs (ZKPs) play a crucial role in web3fabric by enabling trustless verification of identity, compliance, and credentials without exposing sensitive data.

• Why ZKPs Matter in Decentralized Identity:
  • Privacy-Preserving Compliance: Users can prove regulatory compliance (AML/KYC) without revealing personal data.
  • Fraud Prevention & Security: Transactions require cryptographic proof of user validity, reducing identity fraud risks.
  • DeFi & Financial Services Integration: Users can access exclusive financial products (e.g., accredited investor DeFi pools) without disclosing identity details.

• How ZKPs Give LQDTY an Edge Over Other Blockchains:
  • Ethereum & Solana lack built-in ZKP identity verification, whereas LQDTY natively supports privacy-preserving authentication.
  • Seamless regulatory compliance without central authorities.
  • High-speed validation using ZKPs ensures real-time identity verification with minimal processing costs.

By integrating ZKPs into identity and credential management, LQDTY creates a secure, scalable, and user-friendly authentication system.

3.8.4 How ZKPs Make LQDTY Faster

LQDTY's ZKP-based architecture improves transaction speed, efficiency, and scalability
while ensuring privacy and compliance.

Performance Advantages of ZKPs in LQDTY:

• Faster Transaction Validation: ZKPs allow instant verification of user identity and credential status, reducing processing delays.
• Lower Computational Load on Validators: Network congestion is minimized since identity and compliance checks occur off-chain.
• Optimized Smart Contract Execution: ZKP-enabled smart contracts require less storage and computation, making them faster and more cost-efficient.

Example: Traditional Compliance vs. ZKP-Based Compliance Process.

By leveraging ZKPs, LQDTY ensures transactions are faster, more secure, and privacypreserving, making it an ideal solution for enterprises, financial applications, and Web3
authentication.

3.8.5 Technical Highlights

LQDTY's web3fabric incorporates cutting-edge cryptographic techniques to enhance decentralized identity management and authentication.

Key Technical Components of web3fabric:

• Decentralized Identifiers (DIDs): Users generate self-sovereign DIDs to verify identity on-chain.
• Zero-Knowledge Proofs (ZKPs): ZKPs allow privacy-preserving compliance without exposing user data.
• Verifiable Credentials (VCs): Users can store secure, tamper-proof credentials for authentication.
• Secure Enclave Storage: Credentials and private keys are stored in a secure enclave for protection.
• Smart Contract Integration: dApps can integrate ZKP-based identity verification for secure authentication.
• Regulatory Compliance Framework: Supports AML, KYC, accredited investor validation, and enterprise-level security.

LQDTY sets a new standard for decentralized identity, authentication, and compliance by combining these technical components.