Glossary
Know Your Transaction (KYT)
The analysis of a transaction's history and counterparties to assess its risk, especially for crypto.
Definition
Know Your Transaction (KYT) is the practice of analyzing the source, history, and counterparties of a transaction — most commonly a crypto transfer — to assess its risk. KYT traces funds through prior addresses to detect exposure to mixers, sanctioned addresses, or darknet markets.
Regulatory context
KYT is not a single statute but a standard-of-care expectation for VASPs under FATF-aligned AML frameworks. For OFAC, transaction tracing is how compliance teams detect whether funds touched a sanctioned address even when the immediate counterparty is clean.
Who it affects
VASPs, exchanges, and increasingly any platform handling third-party crypto flows. Non-custodial agents benefit from KYT as a risk signal but are not always subject to its AML obligations.
Relevance to AI agents
A wallet can be clean on the SDN list but have received funds from a sanctioned address. KYT surfaces that indirect exposure. Agents should combine a sanctions screen (is this address listed?) with a KYT check (has this address touched listed addresses?) for higher-value transfers.
SanctionsAI coverage
SanctionsAI performs the sanctions screen — whether the address itself is on the SDN list. Full graph-based KYT (tracing historical exposure) is a complementary layer.
FAQ
1. Is KYT required by law?
For VASPs under FATF-aligned AML rules, transaction monitoring is effectively required. The specific obligation varies by jurisdiction.
2. What is the difference between KYT and sanctions screening?
Sanctions screening checks whether a counterparty is on a list now. KYT traces whether a counterparty has historical exposure to sanctioned or high-risk addresses.
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