MiCA Compliance¶

Q: What is the difference between KYC and KYT?

KYC (Know Your Customer) verifies the identity of a person using documents. KYT (Know Your Transaction) screens the on-chain behaviour of a wallet address. DeFi users are pseudonymous - they don't share identity documents. KYT screens the wallet itself: its behavioural patterns, counterparty network, and transaction history. ChainAware implements KYT, not KYC.

Q: What does "under 2% false positive rate" mean in practice?

A false positive is a legitimate user incorrectly flagged as risky. At 30-70% false positive rates (typical of rule-based forensic tools in DeFi), a protocol blocks or flags a large proportion of legitimate users - destroying conversion and creating friction. ChainAware's under 2% false positive rate means almost all legitimate users flow through without friction.

Q: Does ChainAware replace a compliance team?

ChainAware automates the data layer of compliance - screening, scoring, and audit record generation. Human judgement is still required for complex cases, regulatory reporting, and SAR filing. ChainAware eliminates the manual review queue for routine screening, freeing compliance teams to focus on exceptions.

Q: What percentage of MiCA obligations does ChainAware cover?

Approximately 70-75% of practical MiCA requirements for pure DeFi protocols: sanctions screening, AML behavioural analysis, fraud detection, transaction risk scoring, and documented audit records. PEP screening (add separately) and SAR filing (a process requirement, not a data one) are outside ChainAware's scope.

Key Takeaways
- Know Your Transaction (KYT): scores wallet behaviour rather than checking identity documents - purpose-built for DeFi's pseudonymous architecture
- 98% fraud detection accuracy; under 2% false positive rate; real-time screening in under 100ms
- Covers sanctions screening (OFAC, EU, UN, 50+ watchlists), AML behavioural analysis, fraud prevention, and continuous monitoring
- Available via REST API, Prediction MCP (chainaware-compliance-screener agent), or Google Tag Manager Transaction Monitor

DeFi is no longer in a regulatory grey zone. MiCA enforcement is underway across the EU, the FATF Travel Rule now applies to VASPs in 65+ jurisdictions, and FinCEN has expanded its digital asset guidance to include DeFi protocols. Non-compliance is a business risk, not just a legal one.

ChainAware makes compliance achievable for DeFi-native teams - without the false positive rates, enterprise price tags, or CEX-first assumptions of traditional blockchain forensics tools.

98%
Detection accuracy

<2%
False positive rate

<100ms
Screening latency

€540M+
EU MiCA penalties to date

The Compliance Landscape¶

MiCA - Markets in Crypto-Assets¶

The EU's comprehensive crypto regulatory framework is in full enforcement. Crypto-asset service providers must implement AML screening, transaction monitoring, and risk-based KYC. Penalties have exceeded €540M across the EU.

FATF Travel Rule¶

Applies to Virtual Asset Service Providers in 65+ jurisdictions, requiring identification of transaction originators and beneficiaries above defined thresholds.

FinCEN¶

The US Financial Crimes Enforcement Network has expanded its digital asset guidance, bringing DeFi protocols under BSA obligations in many scenarios.

Why Traditional KYC Fails in DeFi¶

Traditional KYC was designed for banks. It requires identity documents and PII - incompatible with pseudonymous DeFi. But beyond the friction problem, it simply doesn't stop financial crime in DeFi:

KYC screens the person, not the wallet. A verified identity attached to a compromised wallet or a money mule account provides false assurance.

KYC is a one-time checkpoint. A wallet that passes KYC at onboarding may be used for fraud six months later. There is no ongoing monitoring.

Clean-fund laundering bypasses document checks entirely. Sophisticated actors layer through multiple addresses before reaching your protocol. Their final wallet looks completely clean to any document-based system.

ChainAware's Approach: Know Your Transaction (KYT)¶

ChainAware implements KYT - Know Your Transaction - a behavioural, on-chain-native compliance approach built for DeFi. Instead of asking who is this person?, we ask what does this wallet do, and does it exhibit patterns associated with financial crime?

Behavioural Risk Assessment¶

Every wallet is scored against 20M+ behavioural profiles across 8 blockchains:

Transaction pattern analysis - irregular timing, round-number layering, rapid fund cycling consistent with smurfing or structuring
Counterparty network analysis - connections to sanctioned wallets, known exchange hacks, darknet markets, or high-risk mixer services
Historical behaviour scoring - prior fraudulent activity, even through intermediary hops
Velocity and concentration analysis - unusual spikes consistent with automated laundering

AML Sanctions Screening¶

Automated screening against OFAC SDN list, EU Consolidated Sanctions List, UN Security Council list, and 50+ additional watchlists
Real-time matching with known-fraud wallet databases from on-chain intelligence
Jurisdiction-configurable thresholds for different regulatory environments

Continuous Monitoring¶

Compliance is not a one-time event:

Risk scores update automatically as new on-chain behaviour is detected
Alert on risk score changes exceeding defined thresholds
Generate audit trails of wallet risk at each transaction event
Export compliance reports for regulatory review

Products for Compliance¶

Transaction Monitoring¶

AML-grade screening with predictive behavioural intelligence:

Screen every transaction before it processes, not after it settles
Configurable risk thresholds - define what score triggers a hold, a review, or a block
Full audit logging for regulatory reporting
Integrate via REST API or Prediction MCP

Transaction Monitoring Documentation →

Fraud Detection API¶

Real-time wallet risk scoring at onboarding and transaction initiation:

On-demand fraud scores for any wallet address across 8 blockchains
Explainable scoring - understand why a wallet is flagged, not just that it is
Under 100ms latency - gate wallet connect events without degrading UX
98% accuracy, under 2% false positive rate

Fraud Detection API →

Compliance Screening Agent (MCP)¶

For teams building AI-powered compliance workflows, the chainaware-compliance-screener agent orchestrates fraud detection, AML scoring, transaction monitoring, and counterparty screening into a structured Compliance Report with a PASS / EDD / REJECT verdict. Covers approximately 70-75% of MiCA obligations for pure DeFi protocols.

Prediction MCP Documentation →

Predictive vs Reactive: Why It Matters¶

Dimension	Traditional AML	Forensic Analytics	ChainAware (Predictive KYT)
Approach	Fixed rules, sanctions lists	Transaction trace-back	Behavioural pattern scoring
Timing	Pre-transaction (limited)	Post-incident investigation	Real-time, pre-transaction
False Positive Rate	30-70%	High in DeFi context	Under 2% (98% accuracy)
New Wallet Detection	Very limited	Relies on tagged history	Strong behavioural matching
Ongoing Monitoring	Static screening	Manual re-investigation	Continuous automated scoring
DeFi Native	No	No	Yes
MiCA Readiness	Partial	CEX-oriented	Yes - built for DeFi / VASP

A 30-70% false positive rate in DeFi doesn't just slow down compliance processes - it directly damages conversion, creates user friction, and generates its own regulatory liability by blocking legitimate users without documented cause.

Recognition¶

ChainAware is featured in the CB Insights Fraud Prevention Market Map for the AI Era - CB Insights' mapping of companies shaping the next generation of AI-powered fraud prevention.

Frequently Asked Questions¶

What is the difference between KYC and KYT?
KYC (Know Your Customer) verifies the identity of a person using documents. KYT (Know Your Transaction) screens the on-chain behaviour of a wallet address. DeFi users are pseudonymous - they don't share identity documents. KYT screens the wallet itself: its behavioural patterns, counterparty network, and transaction history. ChainAware implements KYT, not KYC.

What does "under 2% false positive rate" mean in practice?
A false positive is a legitimate user incorrectly flagged as risky. At 30-70% false positive rates (typical of rule-based forensic tools in DeFi), a protocol blocks or flags a large proportion of legitimate users - destroying conversion and creating friction. ChainAware's under 2% false positive rate means almost all legitimate users flow through without friction.

Does ChainAware replace a compliance team?
ChainAware automates the data layer of compliance - screening, scoring, and audit record generation. Human judgement is still required for complex cases, regulatory reporting, and SAR filing. ChainAware eliminates the manual review queue for routine screening, freeing compliance teams to focus on exceptions.

What percentage of MiCA obligations does ChainAware cover?
Approximately 70-75% of practical MiCA requirements for pure DeFi protocols: sanctions screening, AML behavioural analysis, fraud detection, transaction risk scoring, and documented audit records. PEP screening (add separately) and SAR filing (a process requirement, not a data one) are outside ChainAware's scope.