When Do Crypto Businesses Need KYT?

When do crypto businesses need KYT? There are four main points: before crediting incoming funds, before sending payments, when adding a new counterparty address, and in ongoing monitoring of existing funds and addresses. Different businesses emphasize different points. Exchanges care most about deposits and withdrawals, payment companies about merchant collections and settlements, and stablecoin issuers about minting and redemption counterparties, but all four points generally apply.

Why Do You Need KYT When Receiving Funds?

Once funds from a hacked wallet or a sanctioned entity are credited, the business can become a link in a money laundering chain. At best, the funds get frozen by an upstream exchange and banking relationships suffer; at worst, the business faces regulatory penalties. That is why user deposits and customer payments should be screened before they are booked, with high-risk funds held back, isolated and reviewed. This is also one of the core steps exchanges take to keep deposit addresses secure and compliant.

Why Do You Need KYT Before Sending Payments?

When processing user withdrawals, merchant settlements or supplier payments, a destination address that belongs to a sanctioned entity or criminal group means the business is sending funds to them, and breaching sanctions rules is usually more serious than receiving dirty money. Screening before payment can also catch other problems. For example, if a user’s withdrawal address is a known scam address, the user is very likely being defrauded. Because on-chain transfers cannot be reversed, this step must happen before signing.

Why Do You Need KYT When Adding a New Counterparty Address?

When businesses add a partner’s, supplier’s or merchant’s receiving address to an address whitelist, they often only check that the counterparty provided it, not whether the address itself is clean. Running KYT before adding it confirms it has no sanctions or criminal links, so a problematic address does not get whitelisted and paid again and again. When the counterparty is another virtual asset service provider, this is also a good moment to verify its regulatory status.

Why Do Funds Already Credited Still Need Ongoing Monitoring?

An address’s risk label can change. A deposit that screened clean may become high risk days later when a hack is disclosed, and a long-standing counterparty address may be added to a new sanctions list. Businesses should regularly rescreen past transactions and whitelisted addresses against the latest label database, and when new risks appear, promptly freeze the related funds, pause payments to those addresses and report as required.

Conclusion

KYT is not a one-time check at deposit. It should cover receiving funds, sending payments, onboarding counterparty addresses and ongoing monitoring, with each step completed before funds move. Safeheron has partnered with Regtank to bring KYT and VASP regulatory status checks to self-custody.

Want to map out where your business needs KYT? Contact Safeheron’s Sales Team to Book a 1:1 Demo