Why you should be watching ERC-20 Tokens

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Read the press release about the launch of our on-demand compliance support for ERC-20 tokens.

While they may sound more like a piece of mechanical hardware than a vehicle for entrepreneurship, ERC-20 tokens have opened the gates to a powerful new ecosystem. They represent an alternative channel for new businesses, ideas, and methods of value transfer to thrive. They’ve been used to quickly raise billions of dollars through Initial Coin Offerings (ICOs) and actively transfer millions of dollars every day to support specialized projects. 

As of October 2019, there are 216,383 ERC-20 token contracts found on the Ethereum network, each representing a unique community eager to participate in the native token project, as one would participate in a crowdfunding sale. With end-users flocking to get involved early, cryptocurrency businesses must quickly support the versatile tokens their communities demand. 

While these tokens may represent groundbreaking opportunities, they also invite exposure to risk. Hackers have recognized ERC-20 tokens as a growing area of value to infiltrate. In early 2019, cryptocurrency exchange Cryptopia was hacked and lost around $16 million (USD), largely in Ether and ERC-20 tokens. This represented around 9.4% of Cryptopia’s total assets and led to the company’s bankruptcy (source: https://thespinoff.co.nz/business/28-05-2019/how-new-zealand-company-cryptopia-lost-over-20-million-from-a-hack/

Emergency announcement from Cryptopia after the initial security breach, January 2019

Aside from hacks, cryptocurrency businesses also need to worry about compliance and how to monitor ERC-20 transactions for illicit activity. Required to meet Anti-Money Laundering/Counter-Financing of Terrorism (AML/CFT) regulations, cryptocurrency businesses need to actively understand if these new cryptocurrencies expose their systems to criminal activity.

To help these businesses keep up with the rapidly-evolving ecosystem, Chainalysis built the capability to support any new ERC-20 token in a matter of weeks across its compliance and investigation products.

Over 130 customers in 35+ countries rely on Chainalysis KYT (Know Your Transaction) to screen transactions in real-time and receive alerts on suspicious activity across more than 25 cryptocurrencies today, including 21 ERC-20 tokens. This allows cryptocurrency businesses and banks to provide a safe and secure experience for end-users while remaining compliant.

Flexible infrastructure design

We designed an infrastructure that supports the top tokens in the market so that we can track the bulk of cryptocurrency economic value, providing real-time data to customers. Given how popular ERC-20 tokens have become, we recognized the need to support this growth early on so we developed software architecture that allows our dedicated data operations team to easily expand coverage for new ERC-20 tokens quickly. 

In April of 2019, we released the support for Binance Coin (BNB), Gemini Dollar (GUSD), Tether (USDT), USD Coin (USDC), Paxos Standard (PAX), TrueUSD (TUSD), in addition to Bitcoin (BTC), Bitcoin Cash (BCH), Ether (ETH), and Litecoin (LTC). 

Since this initial multi-currency release, we now also support Basic Attention Token (BAT), Dai (DAI),  Maker (MKR), Chainlink (LINK), and many others. By the end of 2019, Chainalysis will support 39 ERC-20 tokens in addition to 9 other cryptocurrencies—covering 90% of the market by trading volume.

Support for these cryptocurrencies is also available in our investigations product, Chainalysis Reactor, and is already being used by law enforcement to investigate hacks and other illicit activity across blockchains.

By supporting rapidly emerging tokens and enabling businesses to monitor transactions in real-time, Chainalysis helps build trust in blockchains. If you want to know more about conducting transaction monitoring or investigations for ERC-20 tokens, reach out to us at info@chainalysis.com.

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Learn more about KYT for Stablecoins & Token Issuers

Monitor transactions across the token’s full lifecycle, from issuance to redemption—and any transaction in between.

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How Transaction Monitoring Works at Chainalysis

One of the reasons Chainalysis KYT is so popular is that it uses global anti-money laundering (AML) standards common across regulatory bodies. We apply these standards when each transaction is screened.

Cryptocurrency businesses also need to understand the aggregate risk profile of each of their users. That’s why Chainalysis KYT provides a view of risk profiles at the user level, which reflects all of a user’s screened transactions. For example, if an organization has a user who receives funds from a darknet market, our software automatically flags that transaction as high risk. If the user sends funds to a regulated exchange, our software marks that transaction as low risk. And so on. Every screened transaction feeds into a user’s risk profile. Chainalysis KYT displays all user profiles, sortable by high, medium or low risk (using traffic light colors) for easy scanning.

We apply our risk methodology in real time to all users within an organization’s user base. This saves compliance teams from laborious, manual screening work. They can instead focus on developing comprehensive compliance programs. Organizations that work with us tell us this has enabled them to meet regulatory expectations and launch or grow their businesses.

Customizable risk level

We’re now giving our customers the ability to adjust the risk level of a category or a service. For example, not all jurisdictions around the world treat gambling the same way. In some countries, gambling is not considered a legitimate business activity and thus online gambling sites would be treated as high risk. In other countries, gambling is not considered illicit, which means properly licensed online gambling sites would be treated as low risk.

The ability to customize the risk level of categories and specific services means our customers can automate even more of their compliance workflows.

Organization-wide dashboard

One of the most useful facets of Chainalysis KYT is having a view of all users and their risk profiles directly accessible upon first logging in. It provides a visual alert of which users have high risk profiles and therefore require the most immediate attention. In keeping with the spirit of simplified visual cues, we have now launched a dashboard that summarizes key indicators at the total organization level. For example, organizations can now see what percentage of their user base is falling under high, medium or low risk. They will soon be able to see things like total exposure by category, or total transaction volume per day. These and other metrics will provide our customers additional understanding of their organization’s total exposure trends over time.

In-app chat

At Chainalysis, we strive to provide as much support to our customers as we can. To make it easier to interact with us, we added in-app chat to Chainalysis KYT. This allows our customers to send us questions or feedback without having to leave the environment. Our team typically responds within minutes.

Looking ahead

We know software is most valuable when it makes the lives of our customers easier and more productive. This means we’ll continue to add intuitive capabilities to our compliance products while increasing versatility for ongoing transaction monitoring. In the coming months, we will improve how transaction information is displayed. We will also boost our monitoring capabilities for other cryptocurrencies beyond Bitcoin. And we will deepen the integration with Chainalysis Reactor, which is used for enhanced due diligence and investigations.

The momentum around cryptocurrency compliance is only just starting and we look forward to continuing to offer software that builds trust in blockchains.

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