1. Project Positioning

Background and Key Challenges we faced

With the rapid development of blockchain technology and the Web3 ecosystem, global cryptocurrency transaction volumes have seen explosive growth over the past decade. According to Chainalysis' 2023 report, the total on-chain transaction volume has surpassed trillions of dollars, covering a wide range of scenarios from individual investments to decentralized finance (DeFi). However, this fast-expanding digital economy also brings significant challenges: On one hand, the anonymity and decentralization of on-chain activities provide unprecedented freedom and privacy for users, but they also create a breeding ground for illegal activities such as money laundering and tax evasion. On the other hand, governments around the world are strengthening regulatory efforts, requiring on-chain participants to meet tax compliance and identity verification requirements. This conflict between compliance and privacy has become one of the core bottlenecks for the development of Web3.

Traditional on-chain identity and compliance solutions often fail to strike a balance. Existing KYC (Know Your Customer) processes typically rely on centralized institutions, forcing users to expose sensitive personal information to third parties, which violates Web3's principles of decentralization and privacy. At the same time, the complexity of on-chain transactions, such as cross-chain asset transfers and DeFi protocol interactions, makes tax compliance a challenge for both individual users and protocol developers. It is estimated that in 2022 alone, global tax losses due to incomplete cryptocurrency tax reporting reached hundreds of billions of dollars. Meanwhile, there is an increasing demand from users and developers for privacy protection, especially in the context of data breaches and excessive regulatory intervention.

Mercury aims to become the world’s first on-chain compliance verification infrastructure based on Zero-Knowledge Proofs (zkProof), providing a trust solution that balances privacy protection and compliance needs, focusing on addressing two core pain points: on-chain identity verification and tax compliance. As blockchain technology and decentralized finance (DeFi) rapidly evolve, the Web3 ecosystem is reshaping the global economic landscape. According to the Chainalysis 2023 report, global on-chain transaction volumes have exceeded trillions of dollars, covering diversified scenarios ranging from individual investments to complex DeFi protocol interactions. However, this rapid expansion also brings notable challenges:

• The Conflict Between Privacy and Compliance: The anonymity and decentralization of on-chain activities provide users with freedom and privacy but also create potential grounds for illegal activities like money laundering and tax evasion. Meanwhile, governments worldwide are tightening their regulatory measures, such as the IRS requiring cryptocurrency traders to report capital gains tax, and the European Union’s MiCA regulation enhancing on-chain activity oversight.

• Limitations of Traditional Solutions: Centralized KYC processes require users to expose sensitive information to third parties, which conflicts with Web3’s decentralization principles. The complexity of on-chain transactions (e.g., cross-chain asset transfers, DeFi yield calculations) makes tax compliance a challenge for both individual users and protocol developers.

• Urgency of Economic Losses: According to statistics, global tax losses due to incomplete cryptocurrency tax reporting reached hundreds of billions of dollars in 2022, highlighting the urgent need for compliance tools.

Mercury was created to address these challenges by leveraging technological innovation to bridge the gap between privacy and compliance, providing a secure, efficient, and trustworthy compliance infrastructure for the Web3 ecosystem.

Mission

To build the world's first on-chain compliance verification infrastructure based on Zero-Knowledge Proofs, providing a trust solution for the Web3 world that balances compliance and privacy, and solving two key issues: on-chain identity verification and tax compliance.

Mercury’s Core Values and Technological Advantages

The core value of Mercury lies in achieving a balance between privacy and compliance through technological innovation, offering a multi-party win-win solution for users, protocols, and regulators. Specifically, its value is reflected in the following aspects:

On-Chain Compliance Tools: Mercury provides a convenient tool for individual users, protocol developers, and government departments for on-chain identity verification and tax compliance through Verifiable Credentials (VC) and an on-chain tax labeling system, ensuring that on-chain activities comply with regulatory requirements.

Privacy Protection: Based on Zero-Knowledge Proof (zkProof) technology, Mercury minimizes the exposure of user data, allowing users to verify their identity and transaction legality without disclosing raw information (e.g., transaction details or identity data), achieving a dual win for privacy protection and compliance needs.

Unified On-Chain Identity: Mercury introduces the concept of a unified identity using TRID (Tax Residency DID) as an identity anchor, aggregating cross-chain addresses and behavioral data to create a trusted on-chain tax residency identity system, providing a one-stop identity management and tax compliance experience.

AI-Driven Transaction Analysis: Through the FinTax module, Mercury combines AI-driven transaction nature analysis with user-provided annotations, constructing the most comprehensive on-chain transaction nature database, offering robust data support for tax reporting, on-chain behavior analysis, and compliance audits.

Mercury's unique technological advantages further enhance its market competitiveness. On one hand, Mercury integrates manually annotated and AI-automated transaction nature data to create an industry-leading Verifiable Credentials (VC) database that covers mainstream blockchains (e.g., Ethereum, Solana, Polygon) and facilitates cross-chain data interoperability, providing a solid data foundation for on-chain compliance. On the other hand, the application of Zero-Knowledge Proofs allows Mercury to meet government requirements for tax and Anti-Money Laundering (AML) regulations while ensuring user privacy. For example, users can generate a proof of tax compliance through zkProof, demonstrating that their on-chain transactions meet tax requirements without disclosing specific transaction details. This technological innovation not only enhances compliance efficiency but also reduces the risk of user data leaks. Additionally, the FinTax module uses AI models to semantically and behaviorally analyze on-chain transactions, automatically identifying transaction types (e.g., capital gains, staking yields) and complementing user annotations, significantly improving the accuracy and convenience of tax reporting.

Target Market and User Value

Mercury's target market spans multiple key participants in the Web3 ecosystem, aiming to meet the needs of different user groups through precise market positioning. For individual users, Mercury mainly serves cryptocurrency holders, tax-sensitive traders, and Web3-native users with strong privacy needs. These users typically face the dual challenges of complex tax reporting and privacy breaches. Mercury provides one-click tax reporting through TRID and the FinTax module, enabling users to generate a VC for compliance proof without manually organizing cross-chain transaction records or worrying about third-party misuse of their data. For business clients, Mercury serves public chains and DeFi protocols that require compliance upgrades, such as Polygon and Aave. These protocols need to meet regulatory requirements while maintaining decentralization. Mercury offers VC verification services and compliance modules that can seamlessly integrate into their smart contracts, helping them achieve on-chain compliance without sacrificing user experience. For government clients, Mercury supports tax and financial regulators seeking on-chain regulatory solutions, such as the U.S. IRS and the EU's ESMA. Mercury’s regulatory interfaces and risk-scoring APIs help governments monitor risky on-chain transactions in real time while protecting user privacy, aligning with global regulatory trends.

The core value that Mercury brings to different user groups varies in focus:

• For individual users, Mercury simplifies tax compliance, reduces privacy risks, and allows users to engage more confidently in the Web3 ecosystem.

• For business clients, Mercury provides modular compliance solutions that help public chains and DApps quickly meet regulatory requirements, while the revenue-sharing mechanism (VC verification income sharing) fosters ecosystem co-benefits.

• For government clients, Mercury offers a transparent and trusted on-chain regulatory tool that enables efficient monitoring without compromising user privacy.

Competitive Differentiation and Future Vision

In the competitive landscape, Mercury has established a significant differentiation advantage through full-chain coverage and technological innovation. Existing on-chain identity protocols (e.g., Civic, SelfKey) focus on KYC services for individual blockchains and lack cross-chain identity aggregation capabilities, while tax tools (e.g., Koinly, TaxBit) primarily rely on manual user input and struggle to handle complex cross-chain transaction scenarios. In contrast, Mercury unifies cross-chain identities through TRID, builds the most comprehensive on-chain transaction nature database with its FinTax module (combining AI and user annotations), and uses Zero-Knowledge Proof technology to find a balance between privacy and compliance. This comprehensive advantage—full-chain coverage, AI-driven, and privacy-first—makes Mercury stand out in the market.

Mercury’s core value lies in achieving a balance between privacy and compliance through technological innovation, providing multi-party win-win solutions for users, protocols, and regulators. This is reflected in the following:

• AI-driven Transaction Analysis: Through the FinTax module, combined with AI automatic recognition and user-manually labeled transaction types, Mercury builds the most comprehensive transaction database across all chains, providing precise support for tax reporting and compliance auditing.

• On-Chain Compliance Tools: By using Verifiable Credentials (VC) and a full-chain tax label system, Mercury provides convenient tools for individual users, protocol developers, and government departments to ensure on-chain activities meet regulatory requirements for identity verification and tax compliance.

• Privacy Protection: Based on Zero-Knowledge Proof (ZKP) technology, Mercury ensures "minimal exposure" of user data. Users can complete identity and transaction legitimacy verification without revealing original information (such as transaction details or identity data).

• Unified On-chain Identity: Using TRID (Tax Residency DID) as the unified identity anchor, Mercury aggregates cross-chain addresses and behavior data to create a trustworthy on-chain tax residency identity system, offering a one-stop identity management experience.

Mercury's unique technological advantages further enhance its market competitiveness:

• AI-enabled Efficiency: The FinTax module utilizes AI models to automatically identify transaction types (such as capital gains and staking rewards), complementing user-manually labeled data to significantly improve the accuracy and convenience of tax reporting.

• Full-chain Coverage: Integrating manually labeled data with AI-automatically labeled transaction types, Mercury builds an industry-leading VC database that covers major public chains (such as Ethereum, Solana, and Polygon) and achieves data interoperability through cross-chain communication protocols.

• Privacy and Compliance: Leveraging Zero-Knowledge Proof technology, users can generate tax payment certificates (e.g., proving that on-chain transactions have been taxed) without disclosing specific transaction details, meeting government tax and Anti-Money Laundering (AML) requirements while protecting user privacy.

Target Market and User Value

Mercury’s target market spans multiple key participants within the Web3 ecosystem, with a precise focus on addressing the needs of different user groups:

• Individual Users: Targeting cryptocurrency holders, tax-sensitive traders, and Web3-native users with strong privacy demands, Mercury helps simplify the tax reporting process and protect personal data.

• Business Clients: Serving public chains and DeFi protocols (e.g., Polygon, Aave) that need compliance upgrades, providing VC verification services and compliance modules to help meet regulatory requirements without sacrificing user experience.

• Government Clients: Supporting tax and financial regulatory departments (e.g., the IRS in the U.S., ESMA in the EU) seeking on-chain regulatory technology solutions, aiding efficient on-chain audits and risk management.

Core Value Mercury Brings to Different User Groups:

• Individual Users: One-click tax reporting (generating compliance certificates through TRID and FinTax), reducing privacy risks and allowing users to participate in the Web3 ecosystem with peace of mind.

• Business Clients: Modular compliance solutions (VC verification services seamlessly integrated into smart contracts), achieving ecosystem win-win through revenue-sharing mechanisms (VC verification revenue sharing).

• Government Clients: Transparent and trusted on-chain regulatory tools (regulatory interfaces and risk scoring APIs), enabling efficient regulation while protecting user privacy.

Competitive Differentiation and Future Vision

Mercury has established a significant competitive advantage through full-chain coverage and technological innovation:

• Compared to Existing Identity Protocols: Unlike single-chain KYC services like Civic and SelfKey, Mercury achieves cross-chain identity aggregation through TRID, offering more comprehensive identity management.

• Compared to Tax Tools: Unlike Koinly and TaxBit, which rely on user manual inputs, Mercury enhances tax reporting accuracy and efficiency through AI and full-chain data integration.

• Technical Barriers: Zero-knowledge proof technology ensures a balance between privacy and compliance, creating a difficult-to-replicate technological moat.

Looking ahead, Mercury’s vision is to establish TRID as the universal identity standard in the Web3 world, becoming the "digital passport" of the on-chain economy. By continuously expanding the application scenarios of TRID (such as on-chain credit scoring, decentralized lending, on-chain governance, etc.), Mercury aims to build an open, programmable identity infrastructure that provides unified trust solutions for users, protocols, and regulatory bodies. Ultimately, it seeks to drive the global and sustainable development of the Web3 ecosystem.