As crypto assets increasingly become part of client wealth, financial institutions are more frequently confronted with crypto-related onboarding cases. For compliance teams, the central challenge is not whether crypto should be accepted, but how to establish sufficient transparency to make defensible onboarding decisions.
Understanding what is happening on-chain, what different transaction types represent, and which activities are relevant from a risk perspective is a prerequisite for scalable and consistent crypto onboarding.
Understanding Common Crypto Transaction Types
Crypto activity is not homogeneous. Different transaction types serve different purposes and carry different implications for source-of-wealth and source-of-funds assessments. For financial institutions, distinguishing between these flows is essential.
On- and Off-Ramps via Centralized Exchanges (~15% of crypto flows)
Centralized exchanges act as the primary entry and exit points between the traditional financial system and crypto. These transactions typically involve a client transferring funds from a bank account to an exchange or withdrawing crypto proceeds back into fiat.
From a compliance perspective, these flows are generally the most straightforward to assess, as they can often be verified against existing KYC documentation of the exchange and the client. While this does not remove all risk considerations, it provides a clear reference point for source-of-funds analysis.
Wallet-to-Wallet Transfers (~65% of crypto flows)
The majority of crypto activity consists of peer-to-peer transfers between self-custody wallets. These transactions do not involve intermediaries and therefore require direct on-chain assessment.
For financial institutions, the key question is not the transfer itself, but the counterparty. Wallet-to-wallet transfers can be screened against known sanctioned entities, suspicious addresses, or high-risk counterparties such as mixers, which are designed to obfuscate the traceability of funds.
These checks allow financial institutions to identify potential red flags without treating every wallet transfer as inherently problematic.
Bridges Between Blockchains (~5% of crypto flows)
Bridges enable the movement of assets between different blockchains. While they serve legitimate purposes, they can reduce clarity around source of funds by breaking the continuity of activity on a single chain.
From a compliance standpoint, bridging activity is therefore relevant not because it is automatically high risk, but because it can complicate transparency and requires appropriate contextualization within the broader wallet activity.
Swaps and DeFi Protocol Interactions (~15% of crypto flows)
Swaps and interactions with decentralized finance (DeFi) protocols are typically not transfers of value to another party. Instead, they represent changes in asset composition or interactions with smart contracts.
While these transactions may increase the complexity of wallet activity, they do not necessarily indicate economic flows to third parties. For onboarding purposes, their relevance lies in how they affect the interpretability of wallet activity rather than in direct value transfer.
Translating Transaction Types into Risk Judgements
For financial institutions, understanding transaction types is only the first step. The critical task is translating this understanding into clear, risk-based decisions.
Some counterparties are clear no-go cases, such as sanctioned entities or mixers. In these situations, the decision is typically straightforward and does not require further analysis.
For other transaction types, financial institutions need to define and apply their risk appetite consistently. Context matters. A client with overall transaction volumes of USD 10 million who interacted once with a bridge for USD 100 presents a different risk profile than one whose activity is dominated by repeated bridging or high-risk counterparties.
Consistency in how these distinctions are made is more important than maximum analytical depth.
Building a Clear Picture of Wallet Activity
Once relevant transaction types and risk considerations are defined, financial institutions need to form a coherent view of overall wallet activity.
This typically requires a multi-hop analysis to understand where funds are coming from and how they have moved over time. Importantly, this does not mean that every case requires an in-depth investigation.
Clear-cut cases should remain simple. If a wallet has interacted with a mixer designed to obfuscate source of funds, it is not necessary to investigate subsequent activity in detail, as the presence of such a counterparty alone is sufficient to determine that the client cannot be onboarded.
The objective is proportionality: enough transparency to support a decision, not exhaustive reconstruction of all on-chain activity.
Scalability Through Workflow Integration
A key challenge in crypto onboarding is scalability. Transparency requirements must be integrated into existing onboarding workflows rather than treated as isolated expert exercises.
Where possible, tasks should be distributed across teams. Certain checks and classifications can be performed by relationship managers or first-line teams, with appropriate oversight, escalation paths, and final decision-making remaining with compliance.
This approach reduces bottlenecks, increases consistency, and allows compliance teams to focus on genuinely complex cases.
A Compliance-First Approach
WalletCheck is designed with this operational reality in mind. The focus is not on investigations or asset recovery, but on supporting compliance teams in their day-to-day onboarding processes.
By providing clarity on which activities matter, enabling multi-hop analysis, and supporting decisions through a simple green/amber/red traffic light system as well as clear and automated audit trails, WalletCheck aims to make crypto transparency manageable and scalable within existing bank workflows.
Looking Ahead
Crypto onboarding does not require financial institutions to deep-dive into everything that happens on-chain. It requires them to understand what is relevant, apply their risk appetite consistently, and document decisions in a defensible way.
If you are interested in learning more about our methodology or how WalletCheck supports crypto onboarding from a compliance-first perspective, feel free to reach out:
