December 3, 2025

How Blockchain Intelligence Powers KYC and KYT in Crypto Compliance

In the era of digital assets, compliance can’t be static. It must be dynamic, data-driven, and continuous.

Traditional frameworks built for monthly reporting and manual reviews can’t keep pace with 24/7 blockchain networks that settle thousands of transactions per second. To manage this speed and complexity, compliance teams have redefined two cornerstone concepts of financial integrity: Know Your Customer (KYC) and Know Your Transaction (KYT).

At TRM Labs, these principles come together through blockchain intelligence — transforming compliance from a reactive obligation into a real-time capability that enables trust, speed, and safety across the digital asset ecosystem.

The new compliance landscape

The cryptocurrency ecosystem operates across hundreds of blockchains, thousands of platforms, and billions of transactions — all transparent, all permanent, and all public. For compliance teams, that transparency offers both opportunity and challenge.

Regulators around the world — from the Financial Action Task Force (FATF) to the US Treasury’s Financial Crimes Enforcement Network (FinCEN) and the European Banking Authority (EBA) — have emphasized the same goal: apply existing anti-money laundering (AML) and countering the financing of terrorism (CFT) standards to digital assets, but with the agility and precision that the technology allows.

To do this, financial institutions and virtual asset service providers (VASPs) must not only verify who their customers are (KYC), but also understand what those customers are doing in real time (KYT).

Know Your Customer (KYC) vs. Know Your Transaction (KYT)

What is KYC?

Know Your Customer (KYC) refers to the process by which businesses verify the identity of their customers to ensure they are legitimate and not involved in illicit activities.

KYC is a critical compliance requirement for financial institutions, cryptocurrency businesses, and other regulated entities. In the context of cryptocurrency, KYC plays a vital role in maintaining the safety and integrity of the digital asset ecosystem by deterring money laundering, fraud, and terrorism financing.

What is KYT?

Know Your Transaction (KYT) is the process of continuously monitoring blockchain transactions to detect potential links to illicit activity, high-risk entities, or sanctioned addresses.

Unlike static compliance checks, KYT enables real-time risk assessment by analyzing counterparties, transaction patterns, and behavioral typologies — helping financial institutions and virtual asset service providers (VASPs) respond to threats before value is moved or withdrawn.

The evolution of KYC

KYC traditionally begins with identity verification — ensuring that a customer is, in fact, who they claim to be. But in the crypto and digital asset era, this initial verification is only the starting point.

Once a customer interacts with blockchain networks, their transactions generate ongoing behavioral data. That activity — deposits, withdrawals, token swaps, cross-chain movements — creates a digital footprint that must be monitored for risk.

Modern compliance means dynamic KYC: continuous monitoring that integrates off-chain identity with on-chain behavior.

The introduction of KYT

KYT extends KYC into the blockchain environment. It is the process of continuously screening transactions and counterparties to detect exposure to illicit activity — before, during, and after any exposure occurs.

This requires tools capable of:

Analyzing blockchain transactions in real time
Attributing wallet addresses to exchanges, mixers, or sanctioned entities
Scoring transactions for risk based on counterparties and typologies
Generating alerts for further review or escalation

TRM Labs built its platform to operationalize KYT — connecting blockchain data, machine learning, and compliance workflows into one integrated intelligence layer.

How TRM’s blockchain intelligence platform powers KYT and KYC

TRM serves as a critical intelligence layer in KYT and KYC. Our platform integrates blockchain data with compliance workflows through:

Entity attribution
Risk scoring
Real-time alerts and case management
Cross-chain tracing and bridge analytics
Workflow integration

1. Entity attribution

TRM’s attribution models cluster wallets controlled by the same entity, labeling them with categories such as:

Centralized exchanges and payment processors
DeFi protocols and bridges
Sanctioned or illicit actors (e.g. ransomware groups, darknet markets)
Scam typologies (investment fraud, pig-butchering, impersonation)

This allows compliance teams to understand who their counterparties are — not just the wallet addresses they interact with.

2. Risk scoring

Every transaction passing through the TRM platform receives a risk score based on multiple factors:

Counterparty exposure to high-risk entities
Transaction patterns matching known typologies
Geographic and jurisdictional risk
Sanctions lists, enforcement actions, and scam data

Risk scores update dynamically as TRM’s models ingest new data, ensuring compliance teams always have current intelligence.

3. Real-time alerts and case management

When transactions exceed a configurable risk threshold, TRM automatically generates alerts for review — these rules and alerts can be configured to align with the organization’s risk tolerance and threat categories of interest. When investigators see these alerts, they can drill into TRM’s Graph Visualizer, trace fund flows across chains, and annotate findings directly within the platform.

This configurability reduces false positives while providing a clear audit trail for regulatory reporting.

4. Cross-chain tracing and bridge analytics

TRM connects fund flows across blockchains — even when DeFi protocols or bridges are used. Compliance teams can trace movement from Bitcoin to Ethereum to TRON, gaining full visibility into complex, cross-chain activity.

5. Workflow integration

TRM integrates directly with customer onboarding, transaction monitoring, and case management systems through APIs and SDKs. This allows teams to automate screening, escalate investigations, and file Suspicious Activity Reports (SARs) with full contextual data.

KYT in action: Real-world compliance use cases

1. Sanctions screening

When OFAC designates a wallet or entity, TRM updates its database in near-real time — and compliance teams using TRM are immediately alerted to exposure.

For example, when OFAC sanctioned Tornado Cash and Sinbad.io for laundering proceeds of DPRK cyber heists, TRM users were able to identify and freeze related funds within hours.

2. Scam and fraud monitoring

Through integration with TRM’s Chainabuse reporting network, KYT workflows automatically flag addresses associated with reported scams.

If a customer attempts to deposit funds into a wallet linked to pig butchering operations or investment fraud, for example, the platform alerts compliance teams to intervene before loss occurs.

3. DeFi risk and exposure management

TRM’s DeFi analytics decode smart contract interactions, identifying when transactions involve liquidity pools, decentralized exchanges, or high-risk protocols. Compliance teams gain visibility into exposures that were once considered untraceable.

4. Real-time collaboration through Beacon Network

Beacon Network is a real-time intelligence-sharing network designed to help law enforcement, crypto exchanges, decentralized finance (DeFi) services, and stablecoin issuers identify and respond to illicit activity before funds can be withdrawn.

Created by TRM Labs in collaboration with leading industry participants, Beacon Network enables verified investigators to flag blockchain addresses linked to financial crime — triggering immediate alerts and enabling risk-based responses across the network.

Regional compliance frameworks for virtual assets

Compliance teams use TRM not only to manage internal risk, but also to align with evolving regulatory frameworks, including:

United States: US Bank Secrecy Act (BSA), FinCEN Travel Rule
European Union: Markets in Crypto-Assets Regulation (MiCA), Transfer of Funds Regulation (TFR)
Singapore: Payment Services Act (PSA), AML/CFT Notice PSN02
Japan: Financial Services Agency (FSA) AML/CFT standards
Global: FATF Recommendation 15 for VASPs

TRM’s analytics and risk models support compliance with these frameworks by connecting on-chain activity with real-time monitoring and reporting standards.

The future of compliance in the digital asset era

The future of compliance will be programmable — built into the infrastructure of blockchain itself. Smart contracts and DeFi protocols are already integrating risk controls and analytics directly into code, allowing for real-time enforcement of compliance logic.

TRM is building toward this future by offering:

Risk API integration with custodial and non-custodial platforms
AI-driven anomaly detection for predictive risk scoring
Automated Travel Rule compliance, connecting counterparties across jurisdictions
Collaborative data-sharing frameworks through Beacon and regulatory partnerships

This is compliance as infrastructure — embedded, automated, and global. It’s also important to note that effective compliance is not just about meeting regulatory expectations — it’s a strategic differentiator. Institutions that understand their risk in real time can onboard faster, innovate safely, and earn the trust of regulators and customers alike.

Blockchain intelligence is critical in this effort: transforming compliance from a cost center into a source of resilience and credibility by giving compliance teams the intelligence they need to see the full picture, manage risk dynamically, and help build a financial system that is both open and secure.

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Frequently asked questions (FAQs)

What is KYT in crypto?

KYT (Know Your Transaction) refers to the real-time monitoring of blockchain transactions to identify links to illicit activity or sanctioned entities.