Crypto Compliance Glossary

A set of laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income. In crypto, AML requires exchanges and service providers to monitor transactions and report suspicious activities.

Under MiCA, a type of crypto-asset that maintains a stable value by referencing multiple currencies, commodities, or other crypto-assets. ARTs are subject to specific regulatory requirements including reserve assets and redemption rights.

A formal declaration or certification confirming the accuracy of information or compliance with standards. In crypto, attestations are used to verify reserve holdings and regulatory compliance.

Bundesanstalt für Finanzdienstleistungsaufsicht - Germany's federal financial supervisory authority. Acts as the NCA for MiCA compliance in Germany and oversees crypto-asset service providers.

A type of distributed ledger technology that records transactions in blocks linked together cryptographically. Provides immutability, transparency, and decentralization for crypto-assets.

A protocol that enables the transfer of assets between different blockchain networks. Bridges are critical infrastructure but also common targets for security exploits.

Any entity that provides crypto-asset services professionally, including exchanges, custody providers, and trading platforms. Under MiCA, CASPs must be authorized and comply with operational requirements.

A crypto trading platform operated by a centralized entity that manages order books, custody of funds, and trade execution. CEXs are subject to MiCA regulations as CASPs.

Regulations and procedures designed to prevent the use of financial systems to fund terrorist activities. CFT requirements apply to crypto service providers alongside AML obligations.

The process of examining blockchain transactions to trace the flow of funds, identify patterns, and detect suspicious activities. Essential for AML compliance and risk assessment.

A method of storing crypto-assets offline, disconnected from the internet, to protect against hacking and unauthorized access. Considered a best practice for securing significant holdings.

The method by which a blockchain network agrees on the current state of the ledger. Common mechanisms include Proof of Work (PoW), Proof of Stake (PoS), and delegated variants.

The risk that the other party in a transaction may fail to fulfill their obligations. In crypto, this includes exchange insolvency, custodian failure, or smart contract vulnerabilities.

An entity that holds and safeguards crypto-assets on behalf of clients. Crypto custodians must implement robust security measures and are subject to regulatory requirements in most jurisdictions.

An organization governed by smart contracts and token holder voting rather than traditional corporate structures. DAOs face unique regulatory challenges under existing frameworks.

A comprehensive evaluation methodology for assessing risks associated with digital assets, including smart contract vulnerabilities, market risks, regulatory compliance, and operational risks.

Financial services built on blockchain networks that operate without traditional intermediaries. DeFi protocols enable lending, trading, and other financial activities through smart contracts.

A crypto trading platform that operates through smart contracts without a central authority. DEXs allow peer-to-peer trading but face regulatory uncertainty under MiCA.

A digital system for recording, sharing, and synchronizing data across multiple locations without a central administrator. Blockchain is the most common type of DLT used for crypto-assets.

EU regulation establishing requirements for ICT risk management, incident reporting, and operational resilience testing for financial entities, including crypto service providers.

A unique identifier assigned to digital tokens following ISO 24165 standard. Required for regulatory reporting and helps distinguish between different crypto-assets in the market.

The investigation and analysis performed before entering into a business relationship or transaction. In crypto, due diligence covers technical security, regulatory compliance, and counterparty assessment.

EU agency responsible for banking regulation and supervision. Works alongside ESMA to develop technical standards for MiCA implementation, particularly for EMT issuers.

Under MiCA, a crypto-asset that references a single official currency and functions as electronic money. EMTs must be issued by authorized credit institutions or e-money institutions.

A financial arrangement where a third party holds and regulates payment of funds required for two parties involved in a transaction. Used in crypto for secure trading and dispute resolution.

The EU's financial markets regulator responsible for safeguarding the stability of the European Union's financial system. ESMA develops the technical standards for MiCA implementation.

The runtime environment for smart contracts on Ethereum and compatible blockchains. EVM compatibility is a key factor in cross-chain interoperability and security assessments.

An intergovernmental organization that sets international standards for combating money laundering and terrorist financing. FATF's recommendations significantly influence crypto regulations worldwide.

Government-issued currency not backed by a physical commodity like gold. Examples include EUR, USD, and GBP. Crypto-assets are often traded against or pegged to fiat currencies.

An uncollateralized loan that must be borrowed and repaid within the same blockchain transaction. Used for arbitrage but also exploited in DeFi attacks.

A change to a blockchain's protocol. Soft forks are backward-compatible; hard forks create a permanent divergence. Forks can affect token value and regulatory status.

The cost required to perform transactions or execute smart contracts on blockchain networks like Ethereum. Gas fees compensate validators for the computational resources used.

A crypto-asset that grants holders voting rights in protocol decisions. Governance tokens may be classified as utility tokens under MiCA if they provide access to platform features.

A physical device that stores private keys offline, providing enhanced security compared to software wallets. Recommended for secure long-term storage of significant holdings.

A measure of computational power used in Proof of Work mining. Higher hash rates indicate greater network security but also higher energy consumption.

A crypto wallet connected to the internet, allowing for quick transactions but with higher security risks compared to cold storage. Used for day-to-day operations and trading.

The temporary loss of value experienced by liquidity providers when the price ratio of pooled assets changes. A key risk factor in DeFi liquidity provision.

An international standard for electronic data interchange between financial institutions. Increasingly relevant for crypto payment integration with traditional finance.

A standard for embedding XBRL data within HTML documents, making financial reports both human-readable and machine-processable. Required format for MiCA whitepaper submissions to EU regulators.

The process of verifying the identity of customers before or during business relationships. Crypto service providers must implement KYC procedures to prevent fraud, money laundering, and terrorist financing.

The base blockchain network (e.g., Bitcoin, Ethereum). Layer 1 solutions handle transaction processing and consensus directly on the main chain.

Scaling solutions built on top of Layer 1 blockchains to improve transaction speed and reduce costs. Examples include Lightning Network and Optimistic Rollups.

A 20-character alphanumeric code that uniquely identifies legal entities participating in financial transactions. Required for MiCA whitepaper submissions and regulatory reporting.

A collection of crypto-assets locked in a smart contract to facilitate decentralized trading, lending, and other DeFi activities. Key infrastructure for DEX operations.

An entity that supplies assets to trading platforms or decentralized exchanges to facilitate trading. Liquidity providers earn fees from trades executed against their provided assets.

The risk that an asset cannot be bought or sold quickly enough without significantly affecting its price. Critical consideration for crypto portfolio management.

Illegal practices that artificially affect the price of an asset, including wash trading, spoofing, and pump-and-dump schemes. MiCA prohibits market manipulation in crypto markets.

The maximum value that can be extracted from block production beyond standard rewards by reordering, inserting, or censoring transactions. A source of risk and unfair advantage.

EU Regulation 2023/1114 establishing a comprehensive regulatory framework for crypto-assets. MiCA covers issuance, trading, and service provision of crypto-assets across all EU member states.

Alternative abbreviation for Markets in Crypto-Assets Regulation. Used interchangeably with MiCA to refer to the EU's comprehensive crypto-asset regulatory framework.

Services that mix crypto transactions to obscure the trail of funds. Often associated with money laundering and subject to regulatory scrutiny and sanctions.

A cryptographic technique allowing multiple parties to jointly compute a function while keeping their inputs private. Used in secure custody solutions for key management.

A security mechanism requiring multiple private keys to authorize a transaction. Commonly used for corporate wallets and enhanced custody security.

The regulatory body in each EU member state responsible for supervising and enforcing MiCA compliance. Examples include BaFin (Germany), AMF (France), and AFM (Netherlands).

A unique digital asset representing ownership of a specific item like art or collectibles. NFTs are generally excluded from MiCA unless they qualify as financial instruments.

A computer that maintains a copy of a blockchain and helps validate transactions. Nodes are essential for network decentralization and security.

The examination of data recorded directly on a blockchain to assess transaction patterns, wallet behaviors, and network activity for compliance and risk assessment.

A service that provides external data to smart contracts. Oracles are critical for DeFi applications but introduce potential points of failure and manipulation.

Under MiCA, crypto-assets that are neither Asset-Referenced Tokens (ART) nor E-Money Tokens (EMT). This category includes utility tokens and other crypto-assets with specific whitepaper requirements.

The ability of a firm authorized in one EU member state to operate across all member states without additional authorization. MiCA enables passporting for authorized CASPs.

An individual holding a prominent public position, subject to enhanced due diligence in financial transactions due to higher corruption risk. Relevant for crypto KYC procedures.

A cryptographic key that allows the holder to access and control crypto-assets. Private keys must be kept secure as anyone with access can transfer the associated assets.

An audit method verifying that a crypto custodian or exchange holds sufficient assets to cover customer deposits. Important for transparency and regulatory compliance.

A consensus mechanism where validators are selected based on the amount of cryptocurrency they have staked. More energy-efficient than Proof of Work.

A consensus mechanism requiring computational work to validate transactions and create new blocks. Used by Bitcoin but criticized for high energy consumption.

A cryptographic key derived from a private key that can be shared publicly. Used to receive crypto-assets and verify digital signatures without compromising the private key.

A smart contract vulnerability where an attacker repeatedly calls a function before the first execution completes, potentially draining funds. A common DeFi exploit vector.

Assets held by stablecoin issuers to back the value of issued tokens. Under MiCA, ART and EMT issuers must maintain adequate reserves and follow strict custody requirements.

Detailed technical rules developed by ESMA to implement MiCA requirements. RTS cover areas like authorization procedures, whitepaper content, and operational requirements.

A type of exit scam where developers abandon a project and abscond with investor funds. Common in DeFi and represents a significant counterparty risk.

The process of checking customers and transactions against sanctions lists from bodies like OFAC, UN, and EU. Required for crypto service providers as part of compliance.

The practice of keeping customer assets separate from a company's own assets. Required under MiCA for custodians to protect customer funds in case of insolvency.

Stablecoins that exceed certain thresholds (e.g., customer base, transaction volume, market cap). Subject to additional MiCA requirements and EBA supervision.

A penalty mechanism in Proof of Stake networks where validators lose staked assets for malicious behavior or failing to perform duties correctly.

The difference between expected and actual execution price of a trade due to market movement or low liquidity. A consideration for large transactions and risk management.

Self-executing code deployed on a blockchain that automatically enforces agreement terms when predefined conditions are met. Used for token issuance, DeFi protocols, and automated transactions.

A security review of smart contract code to identify vulnerabilities, bugs, and potential exploits before deployment. Essential for ensuring the security of crypto-asset projects.

A crypto-asset designed to maintain a stable value relative to a reference asset, typically fiat currency. Under MiCA, stablecoins are classified as either ARTs or EMTs depending on their structure.

The process of locking crypto-assets to participate in network validation and earn rewards. Staking services may be regulated under MiCA as crypto-asset services.

A report filed by financial institutions when they detect potentially suspicious activity. Crypto service providers must file STRs as part of AML compliance obligations.

A structured classification system. In MiCA context, refers to the ESMA taxonomy for iXBRL whitepaper reporting that defines required data elements and formats.

EU regulation requiring crypto-asset service providers to collect and transmit originator and beneficiary information for crypto transfers, similar to the SWIFT system for traditional finance.

A classification system for different types of crypto-assets based on their characteristics and functions. MiCA establishes a taxonomy including utility tokens, ARTs, and EMTs.

The process of representing real-world assets (securities, real estate, art) as digital tokens on a blockchain. Enables fractional ownership and improved liquidity.

A metric measuring the total value of crypto-assets deposited in DeFi protocols. Used to assess protocol adoption and potential systemic risk.

FATF requirement that obligates financial institutions and CASPs to share sender and recipient information for transactions above certain thresholds. Implemented in the EU through TFR.

The potential for significant losses when large amounts of value are locked in DeFi protocols. Concentration risk and smart contract vulnerabilities can amplify TVL risk.

A self-custody wallet not controlled by a third-party service provider. Also called non-custodial or self-hosted wallets. Subject to enhanced due diligence under TFR.

A crypto-asset that provides access to a product or service offered by the issuer. Under MiCA, utility tokens have specific whitepaper requirements and may qualify as OTHR category.

A node responsible for verifying transactions and proposing new blocks in a Proof of Stake network. Validators stake crypto-assets as collateral for honest behavior.

FATF terminology for entities providing virtual asset services including exchange, transfer, custody, and related financial services. Similar to CASP under MiCA framework.

The degree of price variation over time. Crypto-assets are known for high volatility, which poses risks for investors and challenges for stablecoin value maintenance.

Software or hardware that stores private keys and enables users to send, receive, and manage crypto-assets. Wallets can be custodial, self-hosted, hot, or cold.

A form of market manipulation where the same party buys and sells an asset to create artificial trading volume. Prohibited under MiCA market abuse provisions.

A list of approved addresses, tokens, or users authorized to participate in certain activities. Used for compliance, token sales, and access control.

A disclosure document that crypto-asset issuers must publish before offering tokens to the public or seeking admission to trading. MiCA specifies detailed content requirements for whitepapers.

A token representing another crypto-asset from a different blockchain, enabling cross-chain functionality. Wrapped tokens introduce bridge risk and custody considerations.

An open international standard for digital business reporting. Used for structured financial and regulatory data exchange, including MiCA whitepaper submissions in iXBRL format.

A DeFi strategy involving moving assets between protocols to maximize returns. Yield farming carries smart contract risk, impermanent loss, and regulatory uncertainty.

A cryptographic method allowing one party to prove knowledge of information without revealing the information itself. Used for privacy-preserving compliance and identity verification.