For years, Know Your Customer (KYC) has been the backbone of crypto compliance. The process is straightforward: verify names, check documents, confirm addresses, or, in short, prove identity. But crypto doesn’t follow the same lines. On-chain, value travels openly across networks, and each token leaves behind a trackable story. These records exist in plain sight, available to anyone who wants to read them.
The real issue is that too often, no one does. When those trails go unchecked, transparency turns into an unused asset. In 2024, cross-chain bridges moved more than $125 billion, and every transfer could be followed step by step on the ledger. Even the most intricate routes remained visible.
That leads to the missing piece. KYC may be effective, but without KYT, or “Know Your Token”, the job is incomplete. To put it bluntly, checking every passport while ignoring the suitcase means you haven’t really checked at all. And to be clear, KYT isn’t bank-style surveillance. It’s more about flow-based screening that grades asset histories before they land, without violating privacy or blocking legitimate movement.
When Clean Passports Hide Unread Histories
Everyone in crypto compliance knows the process: ID verification, proof of address, and biometric checks. Yes, these steps block obvious fraud, and the underlying tech keeps improving. But none of that tells you anything about the asset itself.
In 2024, monthly cross-chain bridge volume ranged from $1.5 billion to over $3 billion. And none of those tokens vanished as they simply moved across contracts and wallets, leaving visible trails all the way. In other words, even as they crossed thousands of addresses, their paths were traceable before landing on big venues, where KYC appears to be normal.
Source: ChainalysisThis visibility is exactly what regulators aim to codify through frameworks like the Travel Rule, but adoption remains uneven. Nearly a third of jurisdictions haven’t implemented this rule at all, and even fewer enforce it. By using KYT to assess provenance directly from the chain, providers can meet, or even exceed, regulatory expectations, turning built-in transparency into a compliance edge that traditional finance simply can’t replicate.
That’s the operational gap where deposits often arrive without any review of the histories they carry, unless KYT is applied first.
Reading the Chain Each Coin Carries
If KYC tells you who the customer is, KYT shows you what the asset has been through. So leaving that trail unread can mean taking exposures you could’ve avoided. That’s why firms need structure to make sense of those trails.
One proven approach starts with six key checks, a practical framework used across the industry. It includes reputational checks on the team, technical assessments of code and governance, financial health through market depth and liquidity, legal status, cybersecurity posture, and auditability. Together, these checks create a framework that lets teams assess a token’s risk profile before it’s ever listed or accepted.
In practice, this structure creates confidence. Token-level analysis helps firms reassure users and partners long before assets ever touch their books.
At the flow layer, KYT screening before settlement protects firms from inheriting movements that could compromise trust, even if the sender passed KYC.
One public tracing effort followed over $16 million in token flows across thousands of wallets, showing that even multi-hop chains of movement can be audited and labeled after the fact. Even though the data was there all along, without that tracing, tokens would’ve entered circulation with no visibility of their origin.
That’s why certain red flags now require standardized thresholds: high holder concentration, unaudited contracts, or liquidity dominated by market-makers. Moreover, regulators want to see where those lines are drawn and whether they’re applied consistently.
The real test is scale. No team can manually trace thousands of transactions in real time. Which is why KYT now pairs AI clustering with human oversight. Automation for the data, policy for the meaning. In the end, it’s what makes KYT scalable, and, importantly, standard.
Licenses Now Demand It, KYT Becomes the Standard
What was once a “nice to have” is now becoming a baseline for licensing. In Europe, MiCA is already in effect. Stablecoin rules began applying in June 2024, and from early 2025, providers have entered a licensing window that runs through mid-2026. In practice, that means showing how assets are monitored on-chain.
Asia has moved in parallel. In Hong Kong, the SFC extended a swift licensing process for VATPs after December 2024, making KYT and on-chain analytics part of the approval process. In the Gulf, regulators have gone further. Under Decision 26/RM 2023, the UAE’s VARA and SCA expect VASPs to run pre-listing due diligence and integrate KYT into routine operations rather than checking only when something goes wrong. These are today’s license conditions.
Some firms now publish token-risk methodologies alongside their AML programs. Others move forward by refusing flows from counterparties that can’t demonstrate origin data and by integrating KYT dashboards into governance, product, and risk reviews.
Ultimately, new licensing regimes, rising expectations, and higher renewal standards all point in the same direction. And the signal is clear: knowing your customer is no longer enough, firms must also show they understand and screen the assets they move.
Check the Token, Keep the Trust
Compliance built only on passports leaves the door half-open. The real test now is whether firms read the stories tokens already tell as they enter the system. The same openness that once worried regulators is now the industry’s strongest defense. Regulators are raising standards, forward-looking companies are embedding token-risk checks into daily routines, and investors, in turn, expect nothing less.
That’s why “Know Your Token” should no longer be treated as a next-gen idea. It’s a basic practice for showing that crypto can govern itself, and save trust where it belongs. Firms that adapt early will strengthen their positions and keep control in their own hands. More importantly, they’ll preserve the one currency the market never forgives them for losing: trust.
Disclaimer: The opinions in this article are the writer’s own and do not necessarily represent the views of Cryptonews.com. This article is meant to provide a broad perspective on its topic and should not be taken as professional advice.
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