Most NFT platforms either avoid or delay identity verification
Most NFT platforms either avoid or delay identity verification
Most NFT platforms either avoid or delay identity verification, especially for sellers and high-volume traders. They often operate on the assumption that decentralisation exempts them from financial compliance frameworks. This is incorrect.
Jurisdictions including the UK, EU, and UAE have clarified that NFT platforms facilitating large-scale secondary sales or direct fiat-to-crypto conversion must implement AML/KYC processes equivalent to those of regulated exchanges.
Without robust identity checks, platforms are open to anonymous abuse. This includes high-risk individuals conducting high-volume trades or laundering funds through coordinated wallet transactions. In 2023, Chainalysis reported that over $3.1 billion in illicit funds flowed through NFT platforms using linked wallets without verified identities. Regulatory bodies such as the FCA and ESMA increasingly reference NFT trading as a “converging” category under VASP regulation. Platforms ignoring this trend face bans, fines, and loss of banking partnerships.
Design patterns commonly observed
→ Allowing wallet connection to proceed to mint/sale without identity verification
→ Requiring only email or social media login for creators
→ No tiered access control based on transaction volume or risk profile
→ Absence of KYC refresh logic (one-time check only, no re-verification)
Correction requires structured onboarding logic tied to behavioural thresholds:
→ Identity verification triggered when a creator mints above X value or volume
→ Enhanced Due Diligence (EDD) for cross-jurisdictional transactions
→ Persistent identity mapping across multiple wallets/accounts
→ Re-verification when cumulative volume crosses defined compliance threshold
This requires platforms to move from static onboarding to dynamic, risk-driven UX. Full automation via AML APIs (e.g. ComplyCube, Sumsub) is now affordable and scalable.
Failure to implement this foundational layer ensures regulatory rejection during licensing attempts and classifies the platform as high-risk in institutional due diligence assessments.