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Co-authored with Vedran Capkun & Pepa Kraft
Keywords: crypto tokens, know-your-customer, anti-money-laundering, investor privacy
Abstract:
Tackling widespread use of crypto tokens in illegal transactions and international money laundering requires new accounting regulations and devices. Firms that issue crypto tokens can increase transparency by performing investor identity verification (IIV). We analyze IIV, its association with demand for crypto tokens, and find that know-your-customer (KYC), anti-money laundering (AML), and counter-terrorism financing (CTF) verifications are associated with higher demand for crypto tokens. In the period following the SEC intervention that banned a sale of crypto tokens by both US and international issuers to US investors, we observe a greater decrease in demand for the crypto tokens of firms that did not adopt IIV and thus cannot verify their investors’ residency. The effect is limited to the secondary market. In the primary market, IIV is associated with lower demand, suggesting privacy concerns outweigh transparency benefits at issuance. We provide new evidence on externalities of imposing information flow from investors to firms.
Bio:
https://business.uc3m.es/es/faculty/profesor/perfil/yang-ding