Travel rules in cryptocurrency regulation: technical architecture and compliance practices

After the implementation of the Hong Kong Stablecoin Ordinance in 2025, HashKey Exchange intercepted 1,763 transactions involving sanctioned addresses such as Tornado Cash in 2024 by connecting to the Chainalysis system to identify in real time whether a counterparty is associated with a dark web platform, amounting to more than 8.90 million US dollars. This achievement is a typical case of the global implementation of the "Travel Rule".

Core mechanism and technical architecture

FATF's travel rules require virtual asset service providers (VASPs) to collect and transmit the identities of originators and recipients when a single transaction exceeds $1,000. For example, when a user transfers money to a high-risk address, HashKey Exchange's KYT (Know Your Transaction) system automatically triggers secondary authentication and freezes funds until a human review is passed. This mechanism has enabled the "Digital Hong Kong Dollar-Singapore Dollar" bridge project jointly piloted by Hong Kong and Singapore to reduce transaction confirmation time to 3 seconds and compliance costs by 40%.

• Centralized API : The Travel Rule Kit developed by OKLink in collaboration with Sygna, which exchanges transaction information in real time through encrypted APIs, has been deployed on exchanges in Japan and South Korea, and supports compliance verification that processes 5,000 transactions per second.
• Distributed ledger : In the Hong Kong Monetary Authority's regulatory sandbox, stablecoin publishers embed transaction information through metadata fields such as MEMO, ensuring that the data is traceable and immutable.
• Smart Contract Automation : A stablecoin project was marked as high risk by the Onchain Audit system and refused to go online because it did not implement the proof of reserves function in the contract, reflecting the enforcement of the preset compliance rules of the smart contract.

Zero-knowledge proof (ZKP) technology has achieved a breakthrough in Hong Kong's compliance practice: users can prove the legitimacy of assets through ZKP without revealing their identities, which not only meets the GDPR data privacy requirements, but also meets the FATF Travel Rule. HashKey Exchange's cold wallet adopts a 2-of-3 multi-signature solution. The private keys are stored in the hardware security module (HSM) in Hong Kong, Singapore and Switzerland. The two places need to authorize at the same time to withdraw coins, realizing the dual guarantee of asset security and compliance review.

Global compliance practices and challenges

• European Union MiCA framework : requires the full application of the Travel Rule for cryptoasset transactions, abolishes the minimum transaction threshold, and will unify the compliance standards of the 27 European Union countries after implementation in 2025.
• Mandatory localization in South Korea : Exchanges such as Upbit are only allowed to transfer money to domestic compliance platforms, and users cannot withdraw money to decentralized wallets such as MetaMask, reducing the risk of money laundering through Physical Separation.
• Global Advancement of FATF : As of 2025, only 29 jurisdictions around the world have passed Travel Rule legislation, of which only 11 actually implement it. The main obstacles are inconsistent technical standards and privacy protection disputes.
• On-chain Data Analysis : The on-chain Tianyan platform of Ouke Cloud Chain supports the full currency analysis of 20 public chains, has 3.50 billion address labels and a 70 million black and gray address database, and can identify the "decentralized-centralized" money laundering mode. If a wallet initiates 20 small transfers within 5 minutes, it will be marked.
• Compliance cost pressure : Hong Kong licensed stablecoin publishers are required to pay more than HK $2 million per year for audit fees, including private key management, smart contract audit, on-chain monitoring and other compliance expenses.

The DeFi protocol is difficult to enforce the Travel Rule due to the lack of a centralized entity. In 2025, an anonymous DEX was not connected to the compliance system, resulting in $23 million worth of USDT flowing into the illegal fund pool, and was eventually punished by a multinational coalition. HashKey Exchange monitored DeFi counterparty risk in real time by connecting to the Chaintelligence platform, and intercepted 347 related transactions in 2024.

III. Future trends and solutions

• Homomorphic encryption : Regulators can perform statistical analysis of encrypted transaction data to determine anomalous patterns without revealing the original information, balancing privacy and compliance.
• The TRISA Network , a distributed regulatory consortium of VASPs that enables global mutual recognition of compliance through registered nodes, is expected to cover 80% of cross-border cryptocurrency transactions by 2026.

Circle's Payment Network (CPN) integrates USDC and fiat settlement, automatically matching Travel Rule requirements through smart contracts, reducing cross-border transfer compliance costs for corporate customers by 60%. HashKey Exchange's compliance reports are stored in a Merkle Tree structure, ensuring data is verifiable and immutable, becoming a standard paradigm recognized by the Hong Kong Securities Supervision Commission.

FATF's Travel Rules Information Sharing Architecture (TRISA) is testing cross-chain compliance verification: when a user transfers money from the Bitcoin chain to the Ethereum chain, the system automatically synchronizes the transaction information to the two regulatory platforms, enabling real-time cross-border monitoring. This collaborative mechanism is expected to reduce the confirmation time of cross-border compliance transactions to less than 10 seconds by 2026.

The essence of travel rules is to reconstruct the financial trust system through technical means, and its implementation relies on the trinity framework of "technology-institution-international cooperation". The practice of HashKey Exchange has proved that through KYT system, smart contract audit and cold wallet storage, the risk of financial crime can be reduced by 92%. Users need to be vigilant: any platform that is not connected to the anti money laundering system on the chain has a blind spot for asset traceability.