The value of blockchain analytics in HNWI customer onboarding

Onboarding customers in the financial services industry can be time consuming and expensive.  One of the tougher aspects of the process is verifying source of wealth.

When it comes to wealth analysis on high net-worth individuals (HNWIs), there is plenty to consider.  Often these individuals have a lengthy, complex careers with diversified business interests.  They might be politically exposed.  Or they may operate in several high-risk jurisdictions.  

In the banking world, external consultants are paid sizeable sums to gather intelligence on HNWIs to satisfy internal compliance and regulatory requirements.  These checks can involve multi-jurisdictional information gathering, including discreet on-the-ground enquiries with sources to understand more about their background and probity.

All of this requires significant time and money.  It can also mean a huge amount of paperwork passing back and forth between the prospect and the banker.  

And despite all that, its not always possible to get an accurate picture.  There will always be uncertainties and gaps in the public record.

For crypto HNWIs, the story is different.  Not only is activity in one asset class, but the money-making journey is almost entirely public. Every transaction is recorded on the blockchain.  And that blockchain is freely available for anyone to examine.  

With the right information, it is possible to assess a prospect’s crypto journey from initial investment to cashing-out almost entirely with publicly available data.

And let’s not forget, for most crypto millionaires, their journey started recently.  Many Hoptrail source of wealth cases start during the 2017 or 2021 bull markets.

In some recent instances, high-value portfolios are less than a year old, with prospects having ridden the wave on Solana through 2024,when the price of SOL, the chain’s native token, moved from $20 per token to over $250 per token at its height.  Many memecoins created on Solana during that time rose far higher still, creating a slew of millionaires overnight.

From a profile perspective, crypto investors tend to have a limited public footprint.  They are overwhelmingly young, with little to no corporate track record and very few off-chain data points to grapple with.  

Almost all of their wealth generation story – and by extension their broader track record and background – is on the blockchain.

And as the blockchain is tamper proof, it provides an ideal forum to obtain credible, high-confidence insights on a prospects’ activities.  

It is therefore a compliance tool in its own right; and an important ally for regulated services when dealing with crypto HNWIs.

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Beyond the financial narrative, the blockchain is also source of reputational intelligence.  With the right data, it can tell you whether a prospect has been exposed to a high-risk issue and in what way.  It can show you how frequently they have been exposed to illicit activities and whether that exposure is direct or indirect.  

You can even rule out potential red flags.  For instance, if a prospect has dealt with a wallet later found to have received illicit funds, a cross-check of timestamps will tell you whether this issue is relevant to the prospects’ activity at the time.

Hoptrail combines off-chain data with on-chain analytics to offer deeper insight into a prospects’ trading ecosystem and whether they are dealing with reputable entities.

The point here is to provide a mechanism for rigorous counterparty diligence, especially given the sheer number of crypto services globally and the difficulty of discerning their appropriateness from on-chain data alone.  

Combining wider data sets – such as corporate data, sanctions listings, licensing information, and financial crime checks – into wallet screening provides for an extremely powerful diligence tool for compliance professionals.  

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Since we started Hoptrail in late 2021, we have onboarded over $1 billion in crypto proceeds to banks.  The use of on-chain analytics in customer onboarding - what we call 'on-chain onboarding' - has reduced costs, saved time, and increased certainty on the outcomes.

Our own estimates place the approximate savings to our clients since 2021 at approximately $5 million.  

But better yet is the collective time saved.  In the past, clients have spent months onboarding crypto customers – and in some cases more than a year.  We have reduced that time to weeks, saving years of time for our clients.

This has afforded clients the opportunity to onboard more crypto customers, and gain first-mover access to the next generation of wealthy entrepreneurs entering the global financial system.