Chainalysis reveals framework to standardize on-chain fund tracing for investigators
Chainalysis, a prominent cryptocurrency analytics firm, officially released a proposed ontology framework on June 29, 2026, aimed at standardizing on-chain fund tracing for investigators. The proposal serves as a technical roadmap for how law enforcement can identify and link clusters of crypto addresses to specific entities with higher degrees of transparency and scientific rigor.
The framework arrives as blockchain analytics becomes increasingly central to high-profile legal proceedings and global compliance. By formalizing these standards, Chainalysis intends to improve the explainability of forensic methods in courtrooms, ensuring that prosecutors and investigators can demonstrate the reliability of their data when tracing illicit financial flows across distributed ledgers.
Establishing a universal standard for address clustering
At the center of the Chainalysis proposal is a systematic approach to “clustering,” a process used to group multiple crypto addresses believed to be under the control of a single person or organization.
Currently, the definition of a cluster lacks a universal meaning across the industry, often leading to opacity in how different tools reach their conclusions. The new ontology breaks these clusters down into specific components, such as wallet segments and functional roles.
Jacob Illum, Chief Scientist at Chainalysis, told CoinDesk that the proposal aims to clarify what evidence supports the conclusion that multiple addresses belong to the same entity. The framework classifies addresses based on their usage, identifying whether they function as deposit addresses, change addresses, or other specific roles.
This detailed breakdown allows investigators to better understand the data they possess and evaluate the level of confidence they can place in the resulting transaction graph.
This technical clarity is becoming vital as more financial activity move toward digital systems. As leaders like Brian Armstrong warn that finance must move on-chain to remain relevant, the legal standards for interpreting that data must keep pace with adoption. Chainalysis is now opening the proposal for broader industry discussion to refine these definitions.
A two-tiered structure for evaluating transaction graphs
The proposed ontology introduces a two-layer structure for describing on-chain relationships. The first tier defines the structural graph, or the literal map of transactions. The second tier involves an evaluation of inferred confidence. Because investigators rarely have access to private keys—the definitive proof of wallet ownership—they must rely on behavioral patterns and on-chain data to link wallets together.
Chainalysis designed and validated this methodology based on its experience in high-stakes U.S. Department of Justice (DOJ) cases. A key precedent for this approach was the prosecution of Roman Sterlingov, the co-founder of the mixing service Bitcoin Fog.
In that 2024 case, Judge Randolph Moss ruled after a Daubert hearing that the firm’s software was “highly reliable,” marking a significant step in the legal acceptance of blockchain analytics as substantive evidence.
By codifying these methods into a public ontology, the firm seeks to move away from “black box” algorithms and toward a transparent science. Jacob Illum noted that the only way to validate that people are “doing it right” is through independent scrutiny and testing.
Validating methods through judicial scrutiny
The legal validation of Chainalysis’s methodologies did not happen overnight. The firm’s Reactor tool, which has since evolved into their Investigations product, underwent intense scrutiny during the Bitcoin Fog trial. Here, the court mandated a Daubert hearing, a legal proceeding to assess the scientific validity and reliability of expert testimony and scientific evidence. Judge Randolph Moss’s ruling affirmed that “substantial evidence supports the government’s submission that the software is highly reliable,” laying crucial groundwork for future cases.
This judicial endorsement is significant. It sets a precedent that the methods used by Chainalysis and other blockchain analytics firms are not speculative. Instead, they meet the rigorous standards required for evidence in a court of law. This ruling helps build confidence among law enforcement agencies and prosecutors regarding the utility and admissibility of blockchain data in complex financial crime investigations.
Chainalysis has continued to refine its approach, building on years of experience. Their methodology has been validated against seized “ground truth” datasets, corroborated against real-world identity records across more than 1,000 subpoenas, and verified through undercover transactions. The company reports a remarkable ~0.01% false positive rate and 95% illicit address coverage, a figure independently validated. This precision underlines their commitment to accuracy in a field where errors can have significant implications.
Addressing the evolving challenge of illicit crypto transactions
The need for robust blockchain tracing standards is underscored by the rapidly increasing volume of illicit cryptocurrency transactions. 2 billion. This figure surged dramatically to at least $154 billion in 2025, which represents a staggering 162% year-over-year increase.
A primary driver of this increase was a 694% rise in value received by sanctioned entities, indicating a growing use of crypto to circumvent international financial controls. Stablecoins, in particular, accounted for 84% of all illicit transaction volume in 2025, making them a significant focus for tracing efforts.
These figures highlight the critical role that firms like Chainalysis play in the broader financial ecosystem. They are essential partners for governments and financial institutions aiming to combat money laundering, terrorist financing, and other illegal activities facilitated by cryptocurrencies. The ability to accurately trace and attribute these transactions is paramount to maintaining the integrity of the global financial system.
The firm’s broader efforts in crypto compliance
Beyond this new ontology, Chainalysis has long been a key player in crypto compliance and investigations. Their “Know Your Transaction” (KYT) service is an industry standard, offering real-time blockchain transaction monitoring for exchanges, financial institutions, Virtual Asset Service Providers (VASPs), and payment processors. KYT screens transactions against Chainalysis’s global attribution database, assigns risk scores, and generates compliance alerts within seconds of an on-chain transaction.
This comprehensive coverage extends to 90% of all cryptocurrency activity, ensuring a wide net for potential illicit activities.
Chainalysis’s influence extends globally, with over 1500 customers and data used by more than 50 regulators worldwide. 3 billion in stolen and illicit cryptocurrency, demonstrating the tangible impact of advanced blockchain analytics. The company has also started a phased rollout of an AI-powered blockchain intelligence agent, beginning in summer 2025.
This agent is first being deployed to select government agencies and enterprise clients, with broader availability expected throughout the remainder of 2025, promising even more sophisticated investigative tools.
Key details
This standardized approach helps ensure that as emerging crypto tokens surge in popularity, the methods used to track their movement remain uniform and legally robust.
The limits of on-chain forensic identification
While the ontology improves the tracing of funds, Jacob Illum was careful to highlight the inherent limits of blockchain analysis. He emphasized that on-chain data alone cannot directly identify the real-world identities of end-users. Instead, it provides the roadmap of fund movement that law enforcement then uses to pursue legal avenues, such as issuing subpoenas to centralized entities like exchanges.
The science of the wallet, according to Jacob Illum, must stand on its own because it is supported by the immutable data of the blockchain. Determining who controls a wallet and which entity is associated with it are separate questions from the tracing itself.
This distinction ensures that forensic conclusions are based on hard data rather than metadata that might be held by third-party financial institutions.
Future directions for global law enforcement standards
The proposal is currently being shared with law enforcement groups and industry stakeholders to encourage a more unified technical standard. Chainalysis argues that establishing these norms will enhance the applicability of on-chain methods in legal settings worldwide. A standardized framework allows different agencies to operate from the same baseline when sharing evidence or collaborating on cross-border investigations.
This push for standardization follows the successful use of these tools in recovering or freezing billions in illicit assets in recent years. As the industry moves toward final regulatory deadlines, such as the MiCA implementation in Europe, the need for high-quality, explainable data is likely to grow. Chainalysis expects the ongoing conversation to lead to a more forensic, scientifically-backed environment for blockchain investigations.