KYB: Due Diligence on Institutional Counterparties

In early crypto, partners were Telegram handles. In 2026, MiCA and AML mandates demand transparency. If you sign a contract with a market maker or vendor, you are linking your reputational score to theirs. If they are flagged for laundering, your bank account is 'tainted' by association. This guide provides the fiduciary framework for Web3-Native KYB.

KYC checks individuals; KYB checks businesses. The Core Problem: Shell Companies. You must 'pierce the corporate veil' to find the UBO. Regulators want to know which human profits. Without UBO ID, you cannot clear the trade.

Mandatory Docs: Certificate of Incorporation (Proof of existence); Articles of Association (Governance); Register of Directors (Decision makers); UBO Declaration (>25% owners); Proof of Address (Headquarters).

Paper is cheap; on-chain history is truth. Vetting Process: Request primary wallets and run through Chainalysis/TRM Labs. Red Flags: 1. Hops to High-Risk (Sanctioned entities within 5 hops); 2. Mixer Usage (Tornado Cash linkage triggers bank closures); 3. Source of Wealth (Can they explain capital origin?). Directive: No wallet disclosure = No deal.

Risk: DAOs often lack legal standing. Solution: Identify the 'Legal Wrapper' (Cayman Foundation, Wyoming DAO LLC, Swiss Association). If no wrapper exists, you are trading with an Unincorporated General Partnership—a high-risk compliance failure.

Workflow: 1. Intake (Secure portal link); 2. Automated Screening (Registry/Watchlist check); 3. Satoshi Test (Micro-tx to prove wallet ownership); 4. Forensic Review (Risk Score analysis); 5. Decision (Low Risk = Approve; High Risk = Reject/SAR).

Perpetual KYB: Use monitoring tools (Forta) to track whitelisted addresses. Alert: If a partner interacts with a sanctioned entity, freeze payments immediately. Require annual re-certification.

Don't let 'Launch Hurry' bypass KYB. Price of Failure: Banking Blacklist (De-risking within 48h) and Clawbacks (Bankruptcy trustees reclaiming funds from fraudulent schemes).

A DeFi project hired a Market Maker with a nice website but no on-chain KYB. FBI later revealed the MM was a front for money laundering. Result: Project accounts frozen, founders subpoenaed. Lesson: Logos aren't KYB; forensic data is.

Counterparty Discipline is a competitive advantage. Tier-1 banks only work with verified entities. By implementing rigorous KYB, you protect your access to the global financial system. CryptoWeb3 Standard: Verify Human, Verify Entity, Verify Money.