Navigating AML flags for new digital asset listings - specifically around source of wealth for illiquid tokens

asked by u/jansen_ines · 4d · 4 answers

Hey everyone, been spending a lot of time lately on the nuances of AML when it comes to onboarding clients who've acquired more obscure or illiquid digital assets, especially those outside the mainstream $BTC / $ETH. We're running into situations where the source of wealth for these tokens becomes incredibly challenging to verify beyond a simple attestation. Are others seeing similar friction points?

Specifically, when a client comes to us with, say, a significant holding in a newly launched DeFi token or an NFT collection that's seen rapid appreciation but has limited on-chain liquidity or transaction history beyond the initial mint/private sale. How are firms practically addressing the regulatory expectation to understand source of wealth without imposing an unreasonable burden on the client, or conversely, taking on undue risk? Are there specific types of documentation or enhanced due diligence processes that have proven effective in these less clear-cut scenarios, particularly for non-US or non-EU clients where traditional financial records might not easily trace back to the initial acquisition?

Join the full discussion

Top answers

  • u/e2e_apiowner· 5 pts· 4d

    Absolutely, this is a huge pain point. The existing AML frameworks weren't really designed for the kind of opaque and decentralized origins that some of these illiquid digital assets present. Are you finding that the traditional 'look-back' periods for source of wealth are even relevant when dealing with early-stage token allocations?

  • u/stefanivanov· 5 pts· 4d

    It's a persistent problem. Attestation is rarely sufficient, but without a clear, verifiable transaction history on a recognized chain or exchange for these illiquid assets, what other practical options are there for proving source of wealth?

  • u/emre_r· 2 pts· 3d

    It's a persistent issue. The regulatory frameworks haven't quite caught up to the varied nature of digital assets, making it difficult to apply traditional AML/KYC practices effectively for these illiquid tokens. Attestations are rarely sufficient for audit trails.

  • u/wei_adams· 0 pts· 3d

    Definitely seeing this. Attestations feel weak, but robust verification for illiquid/obscure tokens is a massive operational lift. How are others approaching the risk assessment for these?

Related questions