This outlines the effective use of Travel Rule and on-chain analysis data together.
Summary
- Verify Travel Rule data first: Prioritize verifying Travel Rule data during virtual asset transfers
- Qeury based on 'txid' for cross-verification: For cross-checking data among CODE Travel Rule members, recommendation is to utilize 'txid' over wallet addresses as the standard for reference
There are primarily two methods for obtaining information about the counterparty VASP during the transfer process: Travel Rule solution or on-chain analysis service. A lot of VASPs adopt both methods for different aims, occasionally causing unwarranted confusion n the process of verifying wallet addresses. To reduce this and secure reliable data while providing stable services, let's explore how to effectively use the Travel Rule and on-chain data analysis services.
To better understand the potential issues, wallets will be categorized into logical and physical types.
Withdrawal Wallet Type
Exchanges typically utilize two main types of wallets: those allocated to individual users and those that consolidate users' assets for protective measures, managed centrally by the exchange. The second type may be directly owned by the exchange or managed through a custody service.
Ultimately, there are two distinctions: user's wallets from a logical perspective, used to record transaction results, and exchange's wallets from a physical perspective, where real withdrawals take place.
Such Case Might Pose a Problem
In this situation, the physical perspective wallet owned by third party service, there is an important point to note. One wallet can be used by multiple VASPs.
For example, if a custody service owns the wallet address '1a2b3c', and VASPs A, B, and C store virtual assets in this '1a2b3c' wallet, but B is deemed risky from an AML perspective, then on-chain analysis services, relying on wallet address data, might mark all three VASPs as suspicious.
In such scenarios, even in normal deposit situation, assets may be returned due to the beneficiary VASP's internal screening, causing confusion and inconvenience to the users.
Ideal Use Cases
CODE's Travel Rule data directly indicates the transaction parties and exchanges. Thus, when it comes to validating detailed transaction information, data provide by CODE can be the most trustworthy data.
In conclusion, if the Travel Rule data exists, confirm the Originator using the 'txid' provided via CODE's 'Report Transfer Result' API. And if there are no issues with the Travel Rule data, proceed with the deposit to design a logical user experience.