Compliance Feed

This function analyzes transaction patterns to detect behaviors indicative of money laundering (AML) or terrorist financing (CFT). It uses heuristics to identify mixer usage, chain-hopping, and structuring.

• Key Input: Transaction graph analysis, volume spikes, known illicit service addresses.
• Output: Behavioral risk flags and suspicious activity reports (SAR) frameworks.
• Use Case: A crypto exchange integrates the feed to monitor withdrawal patterns and generate compliance reports.

Protocols use the Compliance Feed to automate governance rules based on on-chain risk data. This enables permissioned pools, geofencing, and risk-based access controls without centralized intermediaries.

• Key Input: User's wallet history, associated risk scores, jurisdictional data.
• Output: Automated allow/deny decisions for liquidity provision or borrowing.
• Use Case: A lending protocol restricts borrowing to users from whitelisted jurisdictions with low-risk scores.

Financial institutions and VCs leverage the feed for counterparty and wallet due diligence before transactions or investments. It provides a verifiable, on-chain history of wallet interactions and associated risks.

• Key Input: Target wallet address, its transaction history and network.
• Output: Comprehensive risk profile and audit trail.
• Use Case: A venture fund screens a project's treasury wallets for exposure to hacked funds or sanctions before investment.

The feed structures on-chain data into formats required for regulatory compliance, such as the Travel Rule (FATF Recommendation 16) or financial transaction reports. It maps pseudonymous addresses to verified entity data where possible.

• Key Input: Transaction data, VASP (Virtual Asset Service Provider) identifiers, user information.
• Output: Standardized compliance reports ready for submission to regulators.
• Use Case: A custodian automates the assembly of Travel Rule data for cross-border transfers exceeding a threshold.

Beyond binary flags, the feed assigns granular risk scores to addresses, tokens, and protocols based on multi-factor analysis. This allows for nuanced risk management strategies like tiered limits or collateral haircuts.

• Key Input: Historical behavior, asset provenance, smart contract risk, network centrality.
• Output: Numerical risk score (e.g., 0-100) with breakdown by category.
• Use Case: A decentralized insurance protocol adjusts premium rates based on the risk score of the collateral being deposited.

The core function of a compliance feed is to screen addresses against sanctions lists from global regulators like OFAC. It flags addresses associated with sanctioned entities, enabling protocols to block or restrict interactions to maintain legal compliance. This is a critical Know Your Transaction (KYT) control.

• Real-time Updates: Lists are updated as new sanctions are issued.
• Automated Enforcement: Smart contracts can query the feed to auto-reject non-compliant transactions.

Beyond binary sanctions, feeds categorize addresses by risk type to enable nuanced policy decisions. Common categories include:

• High-Risk Jurisdictions: Addresses linked to geographically restricted areas.
• Illicit Activity: Addresses associated with hacks, scams, or ransomware (e.g., flagged by Chainalysis or TRM Labs).
• Mixers & Tumblers: Addresses linked to privacy services that obfuscate fund origins.

This allows protocols to implement graded controls, such as limiting deposit amounts for medium-risk addresses.

The trustworthiness of a compliance feed depends on the integrity and sourcing of its underlying data. Key considerations include:

• Source Attribution: Data should be sourced from reputable, audited providers with clear methodologies.
• On-Chain Verification: Some feeds use oracles (e.g., Chainlink) to attest to list updates on-chain, providing cryptographic proof of data integrity.
• Transparency: Providers should disclose false positive rates and update mechanisms.

Compliance feeds are integrated into applications via specific architectural patterns to enforce policies.

• Pre-flight Checks: A wallet or frontend queries the feed before a transaction is signed, warning the user.
• Smart Contract Hooks: A protocol's core contract validates the sender/recipient against the feed during transaction execution, reverting if non-compliant.
• Off-Chain Indexing: Backend services index the feed to monitor and report on compliance post-transaction for audit trails.

A major operational challenge is managing false positives—legitimate addresses incorrectly flagged. Effective systems require:

• Appeals Process: A clear, transparent mechanism for users to contest flags and provide proof of legitimacy.
• Granularity: The ability to de-list specific addresses while keeping broader entity sanctions intact.
• Impact Mitigation: Protocols must design user flows to handle blocked transactions gracefully, avoiding loss of funds.

The process of checking wallet addresses, transactions, or entities against official sanctions lists, such as the OFAC SDN List. This is a core function of a compliance feed, which automates real-time screening to flag interactions with prohibited addresses.

• Purpose: Prevent transactions with sanctioned entities.
• Mechanism: Compares on-chain addresses to a continuously updated database of flagged identifiers.

The continuous analysis of blockchain transactions for patterns indicative of illicit activity, such as money laundering or terrorist financing. While sanctions screening is a binary check, monitoring involves behavioral analysis and risk scoring based on heuristics and network analysis.

• Key Indicators: Rapid fund movement (chain-hopping), mixing services, or interactions with high-risk protocols.

A quantitative assessment assigned to a wallet address or transaction representing its perceived risk level. A compliance feed often generates these scores by aggregating data from sanctions lists, threat intelligence, and on-chain behavior analysis.

• Output: A score (e.g., 0-100) or tier (e.g., Low, Medium, High).
• Use Case: Protocols can set automated policies, like blocking interactions with addresses scoring above a certain threshold.

The technique of grouping multiple blockchain addresses that are controlled by the same entity. This is critical for effective compliance, as a sanctioned actor may use hundreds of addresses. Advanced feeds use clustering algorithms based on common input ownership and other on-chain patterns to map address relationships.

• Benefit: Enhances the accuracy of sanctions screening and risk assessment beyond single-address checks.

A regulatory requirement mandating that Virtual Asset Service Providers (VASPs) share originator and beneficiary information for transactions above a certain threshold. While a compliance feed provides screening, the Travel Rule requires secure information sharing between institutions.

• Relation to Feeds: Compliance feeds help VASPs screen the counterparty VASP's address before sharing sensitive customer data.

The broader field of analyzing public blockchain data to extract insights, track fund flows, and identify trends. Compliance feeds are a specialized application of on-chain analytics focused on regulatory risk. General analytics tools may track Total Value Locked (TVL) or token holder distribution, while compliance feeds focus on illicit finance indicators.

• Example Providers: Chainalysis, TRM Labs, Elliptic.