Compliance
The adherence to regulatory requirements governing cryptocurrency businesses, including Anti-Money Laundering (AML) rules, Know Your Customer (KYC) procedures, securities laws, tax reporting obligations, and sanctions screening. Regulatory frameworks vary significantly by jurisdiction and are rapidly evolving. DeFi's permissionless nature creates unique compliance challenges compared to traditional finance.
“Centralized exchanges like Coinbase must comply with FinCEN regulations in the US, requiring them to verify user identities, report suspicious transactions, and issue tax forms (1099) for gains.”
KYC (Know Your Customer)
Identity verification procedures required by financial regulations where platforms collect and verify users' personal information such as government-issued ID, address, and source of funds. Most centralized crypto exchanges require KYC, while DeFi protocols generally do not. KYC is part of broader Anti-Money Laundering (AML) compliance.
Security Token
A blockchain token that represents ownership in a regulated financial asset — such as equity in a company, a debt instrument, real estate, or a fund — and is subject to securities laws in the issuing jurisdiction. Security tokens must comply with regulations like SEC's Regulation D or Regulation S, including investor accreditation, transfer restrictions, and reporting requirements.
STO (Security Token Offering)
A regulated fundraising method where blockchain tokens represent ownership in an underlying asset — such as equity, debt, real estate, or revenue shares — and comply with securities laws. STOs offer more investor protection than ICOs through regulatory compliance, including investor accreditation requirements, prospectus filings, and transfer restrictions.
CEX (Centralized Exchange)
A cryptocurrency exchange operated by a centralized company that acts as an intermediary between buyers and sellers. CEXs hold custody of user funds, maintain off-chain order books, and typically require identity verification (KYC). They offer high liquidity and ease of use but introduce counterparty risk.