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

When transferring virtual assets between VASPs(Virtual Asset Service Providers), there are two main methods to obtain information about the counterpart VASP based on the 'txid': using a travel rule solution or an on-chain analysis service. Currently, many VASPs use both methods simultaneously for various purposes, which can sometimes cause unnecessary confusion during the wallet address verification process. Currently, many VASPs use both methods simultaneously for various purposes, which can sometimes cause unnecessary confusion during the wallet address verification process.

To understand potential issues, we will categorize the wallet into logical and physical ones.

Types of Withdrawing Wallet

Cryptocurrency exchange wallets can be broadly categorized into two types: those that pool user assets for collective security and those assigned to individual users. The former category may include cold wallets directly owned by the exchange or wallets provided by third-party services such as custodians.

In conclusion, wallets are divided into physical wallets from which withdrawals occur and logical user wallets used to record transaction results.

Potential Issues

At this point, if the wallet from which withdrawals actually occur is owned by a third-party custodian, there is one important consideration: multiple businesses can use a single wallet.

For example, if a wallet address '1a2b3c' held by a custody service is being used by businesses A, B, and C, and business B has risk factors from an AML perspective, then on-chain analysis services based on wallet addresses could flag all transactions from businesses A and C as suspicious.

In such cases, even under normal deposit conditions, the internal screening process of the beneficiary VASP may result in the assets being returned, causing confusion for the user.

Ideal Use Cases

CODE's Travel Rule data includes detailed information about the transaction parties(user of the exchages) and the exchanges, making it the most reliable source for verifying details related to virtual asset transfers.

Therefore, if Travel Rule data is available, verify the originator VASP by txid returned from 'Report Transfer Result (TX Hash)' API. If the data is accurate, proceed with the deposit to ensures a logical and seamless user experience.