How can a company effectively improve compliance and manage Web3 risks?

As the blockchain industry grows, companies face multiple compliance and risk management challenges. Amid the complexities of decentralized finance (DeFi) and the growing threat of security risks, the need for robust compliance solutions has never been more critical.

The regulatory landscape — a complex ecosystem

The regulatory landscape for crypto assets is rapidly evolving, with varying approaches adopted by jurisdictions worldwide. The Financial Action Task Force (FATF) has set global Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) standards, while specific regulations like the Travel Rule, Hong Kong’s VASP regulations, and EU's regulations like Markets in Crypto-Assets (MiCA) introduce further compliance complexities.

Crypto AML/CFT presents unique challenges compared to traditional finance. Anonymity, cross-border transactions, and the lack of centralized intermediaries make it difficult to track and prevent illicit activities. The estimated amount of money laundered through digital assets in 2022 was $23.8 billion, a significant increase from $14.2 billion in 2021.

What’s more, the anonymity blockchain technology allows has been misused by militant groups like Hamas. Most recently, Binance was asked by the Israeli government to freeze numerous accounts linked to the organization. According to law enforcement claims, the terrorist group used the accounts to collect war-related funding via social media. Such instances further highlight the necessity of regulatory frameworks for the crypto and blockchain space.

Now, the crypto industry is witnessing a growing trend toward adopting regulatory technology (RegTech) solutions to address compliance challenges and meet regulatory requirements. Virtual Asset Service Providers (VASPs) are seeking licenses to operate legally, while financial institutions are exploring opportunities in real-world asset (RWA) tokenization.

Major financial institutions also keep an eye on DeFi due to its ability to transform traditional financial services by integrating trustless interactions. Recently, the Bank of Canada discussed the innovations and concerns of DeFi, highlighting regulatory challenges. The central bank noted that “the anonymous and borderless nature of public blockchains complicates regulatory oversight.”

Enabling crypto compliance and risk management

The adoption of RegTech solutions is becoming increasingly important. Blockchain and Web3 companies should prioritize data monitoring and on-chain analysis to detect risks before they materialize. The industry has several blockchain data platforms, one of which is OKLink. It tracks over 170 chains and has over 1,000 TB of structured data.

One of OKLink’s flagship products is Onchain AML, which was announced in June, launched globally in September and now empowers blockchain businesses and DeFi services to enhance compliance and risk management. This comprehensive solution caters to VASPs, institutions, crypto exchanges, Web3 projects, regulators, law enforcement agencies, and developers, safeguarding end users. Web3 projects can use OKLink’s Onchain AML to control risks through smart alerts for contract codes and funds involved with black addresses.

Source: OKLink

OKLink’s Onchain AML offers two core features: Know Your Transaction (KYT) and Know Your Address (KYA). These powerful tools enable businesses and individuals to effectively manage risk and enhance compliance.

The first transaction monitoring tool, KYT, analyzes on-chain risks to assess transaction security. It finds connections between addresses and real-world entities, assesses transaction risks, and helps blockchain services comply with regulations.

The product also helps crypto services improve risk control capabilities. If addresses are involved in illicit activities, it will help crypto services to reject their transfers or freeze their accounts.

Source: OKLink

KYA, a powerful data-driven risk assessment tool, empowers governments, businesses, and individuals to enhance crypto transparency and navigate the complexities of the blockchain ecosystem with greater confidence. This innovative tool leverages a unique model that utilizes five dimensions to meticulously assess risks associated with blockchain addresses:

1. Black addresses: KYA identifies and flags addresses associated with malicious activities, such as scams, phishing attacks, and sanctions, ensuring that users can make informed decisions and avoid potentially harmful interactions.
2. Black address associates: KYA extends its risk assessment beyond blacklisted addresses by identifying addresses that have directly interacted with these malicious entities, providing an extra layer of protection and enabling proactive risk mitigation.
3. Suspicious transactions: KYA identifies and alerts users to addresses involved in suspicious transactions, prompting further investigation and preventing potential losses.
4. High-risk identities: KYA detects high-risk identities, such as Sybil nodes and crypto mixer associates, which are often employed for malicious purposes, safeguarding users from exploitation and promoting a safer crypto environment.
5. Risk-prone entities: KYA classifies exchanges as high-risk, medium-risk, or low-risk, providing valuable guidance for decision-making and enabling users to prioritize interactions with reputable exchanges.

Besides KYT and KYA, OKLink’s Onchain AML offers a blockchain indicators dashboard to analyze on-chain data and a security audit tool to scan tokens.

The OKLink ecosystem also includes an explorer tool supporting over 30 chains and providing users with a detailed view of on-chain activity, facilitating thorough investigations and analyses. This tool allows a granular examination of blockchain transactions, enabling users to uncover potential risks or irregularities.

Source: OKLink

Moreover, OKLink’s Onchain AML suite can be seamlessly integrated with Chaintelligence, a leading crypto asset investigation platform. This integration provides Web3 companies with advanced forensic capabilities for tracing and analyzing illicit transactions.

OKLink aims to create a safer environment for Web3 companies, and by leveraging its Onchain AML suite of risk management tools, businesses and governments can address the industry’s evolving security and compliance challenges.