How to Ensure Compliance with Anti-Money Laundering (AML) and Know Your Customer (KYC) Regulations in Tokenization + BONUS: Top 5 KYC Providers!


16 Jun 2023
How to Ensure Compliance with Anti-Money Laundering (AML) and Know Your Customer (KYC) Regulations in Tokenization + BONUS: Top 5 KYC Providers!

In recent years, tokenization - the act of turning real-world assets or rights into digital tokens on a blockchain - has garnered significant attention. Powered by blockchain technology, artificial intelligence, and cryptocurrencies, this innovative method has transformed industries like finance, real estate, supply chain, among others. Nevertheless, as tokenization becomes more widely adopted, adhering to Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations becomes increasingly important.

AML and KYC compliance within tokenization is imperative for tackling potential risks linked to financial crimes such as money laundering, terrorist financing, and fraud. Through the adoption of stringent compliance measures, businesses can showcase their dedication to upholding integrity, security, and transparency in the tokenization ecosystem.

This article delves into strategies and best practices for achieving AML and KYC compliance in tokenization. By abiding by these principles, companies active in the tokenization domain can protect their operations, stakeholders, and further solidify the industry's overall credibility and sustainability.

Understanding Tokenization and Its Regulatory Landscape


Tokenization, a procedure involving the transformation of tangible and intangible assets or rights into digital tokens on a blockchain, plays an essential role in various domains such as financial securities, real estate properties, intellectual property, and even tangible assets like art or collectibles. By harnessing the advantages of blockchain technology – immutability, transparency, and decentralization – tokenization offers a secure and efficient way to represent and transfer assets.

The regulatory environment of tokenization and adherence to AML and KYC regulations

With increasing adoption of tokenization, global regulatory bodies actively evaluate its ramifications and devise frameworks to mitigate potential risks and ensure compliance. The regulations concerning tokenization differ across jurisdictions – some embrace innovation while others enforce strict rules.

Adhering to Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations is crucial in the realm of tokenization. AML regulations aim to block the integration of illicit funds into the financial system, while KYC regulations center on customer identity verification to prevent money laundering and terrorist financing activities. Complying with these guidelines allows businesses to reduce financial crime risks, uphold operational integrity, and instill trust among stakeholders.

What is KYC?

KYC is a requirement by which regulated entities must obtain personal information about a customer to ensure that their services are not misused and ensure that people applying for financial services are not on sanctions or PEP lists.

What is AML?

AML is a framework of laws and policies aiming to prevent and identify financial crime, including everything from terrorist financing to money laundering. For most institutions, AML will start with KYC — knowing your customers — and will then continue through monitoring financial activity and reporting suspicious behavior. 

Read more here

The importance of AML and KYC regulations in tackling financial crimes

AML and KYC regulations serve as vital tools in combating financial crimes such as money laundering, terrorist financing, and fraud. Money laundering concerns disguising illegal funds’ origins to make them appear legitimate, while terrorist financing entails funding terrorist activities.

Employing comprehensive AML and KYC procedures enables businesses to participate in the prevention, detection, and reporting of suspicious activities. Financial institutions and businesses engaged in tokenization must perform rigorous due diligence on customers, scrutinize transactions for unusual patterns, and inform the relevant authorities of any suspicious activities. Complying with AML and KYC regulations not only aids in thwarting financial crimes but also protects businesses' reputation and fosters a secure and reliable tokenization ecosystem.

Read more about Regulatory Landscape

Applying AML and KYC Compliance Measures to Tokenization

Comprehensive Customer Due Diligence (CDD) Execution

The significance of CDD for validating token holders' identities

  • In the tokenization process, customer due diligence (CDD) plays a crucial role in verifying and authenticating token holders' identities.
  • CDD assists in confirming customers' true identities, evaluating their risk profiles, and uncovering any potential participation in unlawful activities.
  • Thorough CDD helps companies adhere to KYC regulations, reduce the likelihood of money laundering, and improve the overall security of their tokenization platform.

The primary components of CDD, including customer identity verification, risk profile assessment, and transaction activity monitoring

  • Customer identity verification: Implement strong identity verification methods to authenticate token holders. This could entail gathering government-issued ID documents, performing biometric verification, or using digital identity solutions.
  • Risk profile assessment: Determine each customer's risk by considering factors such as occupation, jurisdiction, transaction history, and funding source. Allocate risk scores or categories to effectively prioritize monitoring efforts.
  • Transaction activity monitoring: Create mechanisms to track token transactions in real-time. Employ transaction monitoring systems that can detect suspicious patterns like large transactions, frequent transfers, or interactions with high-risk jurisdictions.

Strengthened Transaction Monitoring

The need for real-time token transaction monitoring to identify suspicious actions

  • It is vital to monitor token transactions in real-time to detect and prevent potential money laundering or fraudulent activities.
  • Prompt detection and response to suspicious patterns, such as multiple high-value transactions or rapid fund transfers, are made possible by real-time monitoring.

Blockchain analytics tools' role in tracking and analyzing transaction patterns

  • Blockchain analytics tools take advantage of blockchain technology's transparency to monitor and examine token transactions.
  • These tools allow businesses to trace fund flows, pinpoint addresses connected to suspicious activities, and gain insights into transaction patterns that may signal potential money laundering or other illicit actions.

Establishing Solid AML and KYC Policies and Procedures

The significance of creating well-defined AML and KYC policies specifically designed for tokenization:

  • For companies engaged in tokenization, it is vital to establish detailed AML and KYC policies that address tokenized assets' unique features and risks.
  • These policies should take into account regulatory requirements, industry best practices, and the specific nature of tokenized transactions to ensure compliance efficacy.

Collaborative Efforts with Regulatory Authorities and Compliance Specialists

By actively collaborating with regulatory authorities, businesses can remain informed about current regulatory progress and foresee any alterations that may affect their AML and KYC compliance obligations due to tokenization.

Collaborating with experienced compliance advisors who have deep knowledge of AML, KYC, and tokenization regulations is critical for creating and executing effective compliance structures for tokenization ventures.

These professionals can offer guidance on crafting strong AML and KYC policies, carrying out risk evaluations, and enforcing industry-standard and regulator-approved compliance processes.

TOP 5 KYC Providers

  1. Fractal

Fractal offers user onboarding for compliance use cases like KYC and KYB. It covers all kinds of KYC levels all in one price. Projects can also make use of its liveness solution which guarantees unique users for e.g. airdrops or crypto games without ever revealing the identity of the user.

  1. SolidProof

SolidProof is a German-based KYC provider with a simple, efficient, and smooth process that adheres to the highest security standards. In addition, the company’s services are affordable, have no hidden costs, and offer a free audit for every project.


Another popular KYC solution is The project focuses on decentralized identity verification and offers a marketplace and gateway protocol. The company does not trade personal information, which increases security and privacy. The project also focuses on decentralization.

  1. Elliptic

Elliptic is another excellent solution for KYC and compliance needs for traditional financial institutions and crypto and NFT projects. They offer various services, including wallet screening, transaction monitoring, VASP screening, and enhanced due diligence.

  1. Blockpass

Blockpass is famous for its quick, easy signup process and automated KYC solution. Blockpass offers a full-service, comprehensive solution for all onboarding needs – including AML watchlist checks. So if you’re looking for a fast, simple, and easy-to-integrate solution, Blockpass is worth considering.


Complying with Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations is essential in tokenization to combat financial crimes, ensure the integrity of operations, and foster trust within the tokenization ecosystem. By implementing robust AML and KYC compliance measures, businesses involved in tokenization can mitigate the risks of money laundering, terrorist financing, and fraud.

The implementation of thorough customer due diligence (CDD), enhanced transaction monitoring, and the development of comprehensive AML and KYC policies tailored to tokenization are vital steps in ensuring compliance. Leveraging technologies such as artificial intelligence (AI) and blockchain analytics tools enhances the efficiency and accuracy of compliance efforts.

Are you interested in tokenization? Contact us!
Start fundraising for your project with Nextrope Launchpad Platform

Most viewed

Never miss a story

Stay updated about Nextrope news as it happens.

You are subscribed

Token Engineering Process

Kajetan Olas

13 Apr 2024
Token Engineering Process

Token Engineering is an emerging field that addresses the systematic design and engineering of blockchain-based tokens. It applies rigorous mathematical methods from the Complex Systems Engineering discipline to tokenomics design.

In this article, we will walk through the Token Engineering Process and break it down into three key stages. Discovery Phase, Design Phase, and Deployment Phase.

Discovery Phase of Token Engineering Process

The first stage of the token engineering process is the Discovery Phase. It focuses on constructing high-level business plans, defining objectives, and identifying problems to be solved. That phase is also the time when token engineers first define key stakeholders in the project.

Defining the Problem

This may seem counterintuitive. Why would we start with the problem when designing tokenomics? Shouldn’t we start with more down-to-earth matters like token supply? The answer is No. Tokens are a medium for creating and exchanging value within a project’s ecosystem. Since crypto projects draw their value from solving problems that can’t be solved through TradFi mechanisms, their tokenomics should reflect that. 

The industry standard, developed by McKinsey & Co. and adapted to token engineering purposes by Outlier Ventures, is structuring the problem through a logic tree, following MECE.
MECE stands for Mutually Exclusive, Collectively Exhaustive. Mutually Exclusive means that problems in the tree should not overlap. Collectively Exhaustive means that the tree should cover all issues.

In practice, the “Problem” should be replaced by a whole problem statement worksheet. The same will hold for some of the boxes.
A commonly used tool for designing these kinds of diagrams is the Miro whiteboard.

Identifying Stakeholders and Value Flows in Token Engineering

This part is about identifying all relevant actors in the ecosystem and how value flows between them. To illustrate what we mean let’s consider an example of NFT marketplace. In its case, relevant actors might be sellers, buyers, NFT creators, and a marketplace owner. Possible value flow when conducting a transaction might be: buyer gets rid of his tokens, seller gets some of them, marketplace owner gets some of them as fees, and NFT creators get some of them as royalties.

Incentive Mechanisms Canvas

The last part of what we consider to be in the Discovery Phase is filling the Incentive Mechanisms Canvas. After successfully identifying value flows in the previous stage, token engineers search for frictions to desired behaviors and point out the undesired behaviors. For example, friction to activity on an NFT marketplace might be respecting royalty fees by marketplace owners since it reduces value flowing to the seller.


Design Phase of Token Engineering Process

The second stage of the Token Engineering Process is the Design Phase in which you make use of high-level descriptions from the previous step to come up with a specific design of the project. This will include everything that can be usually found in crypto whitepapers (e.g. governance mechanisms, incentive mechanisms, token supply, etc). After finishing the design, token engineers should represent the whole value flow and transactional logic on detailed visual diagrams. These diagrams will be a basis for creating mathematical models in the Deployment Phase. 

Token Engineering Artonomous Design Diagram
Artonomous design diagram, source: Artonomous GitHub

Objective Function

Every crypto project has some objective. The objective can consist of many goals, such as decentralization or token price. The objective function is a mathematical function assigning weights to different factors that influence the main objective in the order of their importance. This function will be a reference for machine learning algorithms in the next steps. They will try to find quantitative parameters (e.g. network fees) that maximize the output of this function.
Modified Metcalfe’s Law can serve as an inspiration during that step. It’s a framework for valuing crypto projects, but we believe that after adjustments it can also be used in this context.

Deployment Phase of Token Engineering Process

The Deployment Phase is final, but also the most demanding step in the process. It involves the implementation of machine learning algorithms that test our assumptions and optimize quantitative parameters. Token Engineering draws from Nassim Taleb’s concept of Antifragility and extensively uses feedback loops to make a system that gains from arising shocks.

Agent-based Modelling 

In agent-based modeling, we describe a set of behaviors and goals displayed by each agent participating in the system (this is why previous steps focused so much on describing stakeholders). Each agent is controlled by an autonomous AI and continuously optimizes his strategy. He learns from his experience and can mimic the behavior of other agents if he finds it effective (Reinforced Learning). This approach allows for mimicking real users, who adapt their strategies with time. An example adaptive agent would be a cryptocurrency trader, who changes his trading strategy in response to experiencing a loss of money.

Monte Carlo Simulations

Token Engineers use the Monte Carlo method to simulate the consequences of various possible interactions while taking into account the probability of their occurrence. By running a large number of simulations it’s possible to stress-test the project in multiple scenarios and identify emergent risks.

Testnet Deployment

If possible, it's highly beneficial for projects to extend the testing phase even further by letting real users use the network. Idea is the same as in agent-based testing - continuous optimization based on provided metrics. Furthermore, in case the project considers airdropping its tokens, giving them to early users is a great strategy. Even though part of the activity will be disingenuine and airdrop-oriented, such strategy still works better than most.

Time Duration

Token engineering process may take from as little as 2 weeks to as much as 5 months. It depends on the project category (Layer 1 protocol will require more time, than a simple DApp), and security requirements. For example, a bank issuing its digital token will have a very low risk tolerance.

Required Skills for Token Engineering

Token engineering is a multidisciplinary field and requires a great amount of specialized knowledge. Key knowledge areas are:

  • Systems Engineering
  • Machine Learning
  • Market Research
  • Capital Markets
  • Current trends in Web3
  • Blockchain Engineering
  • Statistics


The token engineering process consists of 3 steps: Discovery Phase, Design Phase, and Deployment Phase. It’s utilized mostly by established blockchain projects, and financial institutions like the International Monetary Fund. Even though it’s a very resource-consuming process, we believe it’s worth it. Projects that went through scrupulous design and testing before launch are much more likely to receive VC funding and be in the 10% of crypto projects that survive the bear market. Going through that process also has a symbolic meaning - it shows that the project is long-term oriented.

If you're looking to create a robust tokenomics model and go through institutional-grade testing please reach out to Our team is ready to help you with the token engineering process and ensure your project’s resilience in the long term.


What does token engineering process look like?

  • Token engineering process is conducted in a 3-step methodical fashion. This includes Discovery Phase, Design Phase, and Deployment Phase. Each of these stages should be tailored to the specific needs of a project.

Is token engineering meant only for big projects?

  • We recommend that even small projects go through a simplified design and optimization process. This increases community's trust and makes sure that the tokenomics doesn't have any obvious flaws.

How long does the token engineering process take?

  • It depends on the project and may range from 2 weeks to 5 months.

What is Berachain? 🐻 ⛓️ + Proof-of-Liquidity Explained


18 Mar 2024
What is Berachain? 🐻 ⛓️ + Proof-of-Liquidity Explained

Enter Berachain: a high-performance, EVM-compatible blockchain that is set to redefine the landscape of decentralized applications (dApps) and blockchain services. Built on the innovative Proof-of-Liquidity consensus and leveraging the robust Polaris framework alongside the CometBFT consensus engine, Berachain is poised to offer an unprecedented blend of efficiency, security, and user-centric benefits. Let's dive into what makes it a groundbreaking development in the blockchain ecosystem.

What is Berachain?


Berachain is an EVM-compatible Layer 1 (L1) blockchain that stands out through its adoption of the Proof-of-Liquidity (PoL) consensus mechanism. Designed to address the critical challenges faced by decentralized networks. It introduces a cutting-edge approach to blockchain governance and operations.

Key Features

  • High-performance Capabilities. Berachain is engineered for speed and scalability, catering to the growing demand for efficient blockchain solutions.
  • EVM Compatibility. It supports all Ethereum tooling, operations, and smart contract languages, making it a seamless transition for developers and projects from the Ethereum ecosystem.
  • Proof-of-Liquidity.This novel consensus mechanism focuses on building liquidity, decentralizing stake, and aligning the interests of validators and protocol developers.


EVM-Compatible vs EVM-Equivalent


EVM compatibility means a blockchain can interact with Ethereum's ecosystem to some extent. It can interact supporting its smart contracts and tools but not replicating the entire EVM environment.


An EVM-equivalent blockchain, on the other hand, aims to fully replicate Ethereum's environment. It ensures complete compatibility and a smooth transition for developers and users alike.

Berachain's Position

Berachain can be considered an "EVM-equivalent-plus" blockchain. It supports all Ethereum operations, tooling, and additional functionalities that optimize for its unique Proof-of-Liquidity and abstracted use cases.

Berachain Modular First Approach

At the heart of Berachain's development philosophy is the Polaris EVM framework. It's a testament to the blockchain's commitment to modularity and flexibility. This approach allows for the easy separation of the EVM runtime layer, ensuring that Berachain can adapt and evolve without compromising on performance or security.

Proof Of Liquidity Overview

High-Level Model Objectives

  • Systemically Build Liquidity. By enhancing trading efficiency, price stability, and network growth, Berachain aims to foster a thriving ecosystem of decentralized applications.
  • Solve Stake Centralization. The PoL consensus works to distribute stake more evenly across the network, preventing monopolization and ensuring a decentralized, secure blockchain.
  • Align Protocols and Validators. Berachain encourages a symbiotic relationship between validators and the broader protocol ecosystem.

Proof-of-Liquidity vs Proof-of-Stake

Unlike traditional Proof of Stake (PoS), which often leads to stake centralization and reduced liquidity, Proof of Liquidity (PoL) introduces mechanisms to incentivize liquidity provision and ensure a fairer, more decentralized network. Berachain separates the governance token (BGT) from the chain's gas token (BERA) and incentives liquidity through BEX pools. Berachain's PoL aims to overcome the limitations of PoS, fostering a more secure and user-centric blockchain.

Berachain EVM and Modular Approach

Polaris EVM

Polaris EVM is the cornerstone of Berachain's EVM compatibility, offering developers an enhanced environment for smart contract execution that includes stateful precompiles and custom modules. This framework ensures that Berachain not only meets but exceeds the capabilities of the traditional Ethereum Virtual Machine.


The CometBFT consensus engine underpins Berachain's network, providing a secure and efficient mechanism for transaction verification and block production. By leveraging the principles of Byzantine fault tolerance (BFT), CometBFT ensures the integrity and resilience of the Berachain blockchain.


Berachain represents a significant leap forward in blockchain technology, combining the best of Ethereum's ecosystem with innovative consensus mechanisms and a modular development approach. As the blockchain landscape continues to evolve, Berachain stands out as a promising platform for developers, users, and validators alike, offering a scalable, efficient, and inclusive environment for decentralized applications and services.


For those interested in exploring further, a wealth of resources is available, including the Berachain documentation, GitHub repository, and community forums. It offers a compelling vision for the future of blockchain technology, marked by efficiency, security, and community-driven innovation.


How is Berachain different?

  • It integrates Proof-of-Liquidity to address stake centralization and enhance liquidity, setting it apart from other blockchains.

Is Berachain EVM-compatible?

  • Yes, it supports Ethereum's tooling and smart contract languages, facilitating easy migration of dApps.

Can it handle high transaction volumes?

  • Yes, thanks to the Polaris framework and CometBFT consensus engine, it's built for scalability and high throughput.