KYC Controls Across Centralized, Decentralized & Hybrid Models
Know Your Customer Standards for Digital Asset Firms
Know Your Customer (KYC) is the foundational control for crypto AML compliance. This whitepaper examines how KYC is implemented across centralized exchanges (CEX), decentralized finance (DeFi) platforms, and other blockchain-native financial institutions. For CEXs, KYC is legally mandated, highly digitized, and increasingly powered by eKYC vendors such as Jumio, Onfido, Sumsub, and Veriff - with biometric liveness checks, document verification, and real-time PEP and sanctions screening now standard practice. In contrast, DeFi protocols operate with no identity verification at the protocol level, relying instead on optional IP geo-blocking and address blacklisting. This whitepaper details the technology stack behind crypto KYC, the risk-based tiered onboarding approach encouraged by FATF, enforcement actions driven by KYC failures, and the emerging concepts of permissioned DeFi and reusable digital identity.
1.25
Approx. 1.25 Billion US dollars in KYC fines issued in 2024, accounting for approximately one-third of all crypto penalties
3500000
British pounds fine issued to Coinbase UK in 2020 involving more than 13,000 high-risk users without enhanced due diligence
3100000
US dollars OFAC fine issued to Exodus in 2025 relating to non-custodial activity without location enforcement
Key Takeaways
Five key takeaways on how KYC, sanctions screening, and compliance controls are applied across centralized and decentralized crypto platforms.
Centralized exchanges require full KYC - government-issued photo ID, proof of address, and biometric liveness check - for users transacting beyond minimal thresholds, using eKYC providers such as Jumio, Onfido, Trulioo, Sumsub, and Veriff.
A tiered KYC model is standard: basic email/phone verification unlocks limited activity; full ID verification with proof of address is required for higher transaction volumes, aligning with FATF's risk-based approach.
PEP screening and adverse media checks using databases such as Refinitiv World-Check and ComplyAdvantage are mandatory components of onboarding for higher-risk customers.
DeFi protocols conduct no KYC at the protocol level - users interact pseudonymously via blockchain addresses. Some front-end interfaces geo-block sanctioned jurisdictions or use blockchain analytics to blacklist known illicit addresses, but these fall short of true identity verification.
OFAC's 2025 settlement with Exodus - a non-custodial wallet provider - confirmed that even software-only crypto firms with no custody of assets must implement effective sanctions and location controls if they have a U.S. nexus.
.png?width=86&height=86&name=Q-Mark%20(ISO%2027001).png)
