Wallet Blacklisting and AML Compliance in Crypto Projects: Assessing Trust, Governance Risks, and Market Resilience in Tokenized Assets

In 2025, the cryptocurrency landscape has become a battleground for balancing innovation, privacy, and regulatory compliance. Wallet blacklisting—a tool used to combat illicit activity—has emerged as both a shield and a sword, shaping trust dynamics, governance risks, and market resilience in tokenized assets. As decentralized finance (DeFi) and tokenized real-world assets (RWAs) gain traction, the interplay between governance structures (centralized vs. decentralized) and anti-money laundering (AML) frameworks has become critical for investors navigating this volatile ecosystem.

Trust Dynamics: The Double-Edged Sword of Blacklisting

Wallet blacklisting, while essential for curbing criminal activity, often triggers a crisis of trust. For instance, the February 2025 ByBit hack, which saw $1.5 billion stolen, forced the exchange to implement real-time blacklisting tools to recover $42.89 million in stolen funds [2]. While this demonstrated the efficacy of rapid response mechanisms, it also exposed vulnerabilities in centralized platforms. Users questioned whether their assets were truly secure, leading to a 17% exodus of liquidity in the immediate aftermath [2].

Conversely, decentralized platforms face a different challenge. The resurgence of privacy tools like Tornado Cash in 2025, despite regulatory crackdowns, underscores how bad actors exploit pseudonymity to evade blacklisting [2]. A report by Merkle Science notes that 41% of blacklisted addresses on Ethereum and Tron were newly created accounts, often used to launder funds before detection [1]. This highlights a paradox: while decentralization enhances financial sovereignty, it also creates blind spots for AML compliance, eroding trust in systems perceived as unaccountable.

Governance Risks: Centralized vs. Decentralized Models

The governance structure of a crypto project fundamentally shapes its ability to enforce AML compliance. Centralized exchanges (CEXs) like ByBit and OKX have adopted AI-driven transaction monitoring and real-time blacklisting APIs, aligning with global standards such as FATF’s Travel Rule [1]. By 2025, 74% of CEXs have enhanced their AML protocols, leveraging blockchain analytics to detect complex laundering networks [4]. These platforms benefit from fiat on-ramps, enabling regulators to trace funds more easily.

Decentralized autonomous organizations (DAOs), however, struggle with compliance. A study by the Financial Crime Academy reveals that 62% of DeFi platforms are at risk of non-compliance with KYC standards, with decentralized exchanges (DEXs) accounting for 41% of illicit DeFi activity [2]. DAOs lack centralized authorities to enforce KYC checks, and their reliance on smart contracts often prioritizes transparency over privacy. For example, the Phemex hack in January 2025 led to a user-driven bank run, compounding financial losses and reputational damage [2]. This illustrates how governance models—whether centralized or decentralized—directly influence a project’s resilience to crises.