KYC — know your customer — is the identity verification process regulated financial services must perform on their users. Centralized crypto exchanges, regulated stablecoin issuers, and licensed crypto services all require KYC before allowing trading, withdrawals above certain thresholds, or fiat on/off-ramps.
Typical KYC flow: - Submit government-issued ID (passport, driver's license). - Submit a selfie for face-match. - Provide proof of address (utility bill, bank statement). - Optional: source-of-funds documentation for large deposits.
Tiered KYC is common: basic tier allows small deposits and limited trading; higher tiers unlock bigger limits in exchange for more documentation.
KYC is driven by AML (anti-money-laundering) laws — FinCEN in the US, FCA in the UK, BaFin in Germany, AMF in France — that obligate regulated entities to know who is using their service, in order to spot suspicious activity.
DeFi protocols that run purely as smart contracts don't do KYC — the contracts can't verify identity. This is a legal grey area; regulators are gradually reaching DeFi via front-ends, sequencers, and other "responsible party" surfaces. MiCA's implementation of this is still evolving in 2026.
Self-custody wallets don't require KYC to use. Moving funds between wallets you control is not a KYC event.