Nominis Explains: KYT Across TradFi, CeFi, and DeFi

As crypto adoption continues to expand across the financial landscape, the demand for better transaction transparency and risk detection has become urgent. While KYC (Know Your Customer) has long been a regulatory staple, it’s no longer sufficient in a world where value moves instantly, globally, and pseudonymously.

Enter KYT - Know Your Transaction. More than just a buzzword, KYT is now a critical layer of intelligence in financial compliance, used to monitor transaction behavior in real time and detect illicit activity. But KYT doesn't look the same everywhere — its application and relevance differ greatly across Traditional Finance (TradFi), Centralized Finance (CeFi), and Decentralized Finance (DeFi).

TradFi: The Old Guard Adapts

Traditional financial institutions, such as banks, wealth managers, and remittance firms, are well-versed in compliance infrastructure. Their transaction monitoring systems are often built around rule-based engines that flag suspicious behaviour based on thresholds, geography, or account velocity.

However, with increasing exposure to crypto, whether via custody services, tokenized assets, or crypto-collateralized loans, TradFi players now face new challenges:

• Blockchain data is transparent but not always easy to interpret.

• Wallets are pseudonymous, making origin risk difficult to assess without specialized tools.

• Exposure to tainted crypto funds can result in regulatory breaches and reputational damage.

KYT in TradFi is evolving from static monitoring to dynamic, blockchain-native intelligence, institutions that once viewed blockchain with skepticism now rely on KYT providers to safely bridge into the digital asset economy.

CeFi: Where Compliance Meets Crypto

Centralized crypto platforms, such as exchanges, custodians, and lending platforms, sit at the crossroads of regulation and decentralization. While they often implement KYC at onboarding, that alone is not enough.

A user may pass KYC and then receive funds from hacked wallets, use privacy tools like mixers, or engage in layering activity that mimics money laundering.

For CeFi, KYT tools must do more than monitor transactions, they must:

• Trace wallet history multiple hops back

• Detect interactions with sanctioned entities, darknet markets, or scam clusters

• Provide real-time alerts and risk scores

Unlike TradFi, CeFi platforms can directly integrate blockchain data into their systems. But their biggest challenge is scale, processing hundreds of thousands of transactions per day while maintaining compliance in multiple jurisdictions.

With regulators like the FATF and EU mandating Travel Rule compliance and deeper AML controls, KYT is no longer optional, it’s core infrastructure.

DeFi: The Frontier of Risk Visibility

DeFi protocols are non-custodial and often permissionless. There’s no onboarding process, no ID verification, and no customer database. Anyone with a wallet can interact with smart contracts, making KYC nearly impossible, but KYT even more essential.

KYT in DeFi focuses on:

• Wallet clustering: understanding which addresses are controlled by the same entity

• On-chain behavior: analyzing patterns such as wash trading, flash loan abuse, or sandwich attacks

• Risk scoring of interactions: assigning trust levels to wallet addresses based on history

However, DeFi faces a unique challenge: protocols don’t always have centralized teams or legal entities to manage compliance. That’s where embedded KYT becomes important, integrated directly into smart contracts, APIs, or dashboards.

As regulators begin scrutinizing DeFi more closely, protocols that adopt real-time, privacy-preserving KYT solutions will be better positioned to remain both open and compliant.

The Next Step: Off-Chain Context

Across all systems: TradFi, CeFi, and DeFi, blockchain data alone isn’t enough. True risk assessment requires combining:

• On-chain transaction history

• Off-chain intelligence (e.g. dark web mentions, IP analysis, leaked credential links)

• Behavioural analytics that assesses how users interact over time

The future of KYT lies in contextual intelligence: understanding not just what a wallet did, but why it matters, and what it’s likely to do next.

In a world where value flows frictionlessly and fraud adapts fast, KYT is the connective tissue between innovation and accountability. Each financial system has its own needs, but the goal is the same: trust without borders, and security without compromise.

As digital finance becomes the default, KYT will no longer be a speciality: it will be standard.

KYT: FAQs

1. Can KYT help identify wallet ownership?

No, KYT does not directly reveal who owns a wallet. Instead, it analyzes wallet behavior, transaction history, and patterns to assess risk. While some KYT systems use clustering to suggest associations between wallets, they do not confirm identity unless combined with KYC or external investigative tools.

2. Does KYT work across multiple blockchains?

3. How often should institutions run KYT checks—just at deposit?

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