Understanding Source of Funds (SOF) for Crypto and How to Submit the Documents

When you use a crypto platform or services of crypto providers, you might be asked to provide proof of your Source of Funds (SoF). This process is vital for complying with anti-money laundering (AML) regulations and other legal requirements designed to maintain the security and integrity of financial services. Below, we explore why SoF matters, what kinds of documentation are acceptable, and how you can make sure your documents meet the necessary standards.

Why Source of Funds Verification Is Necessary

1. Regulatory Compliance – Financial institutions must follow strict AML and customer due diligence rules. Verifying the origin of customers’ funds helps prevent illegal activities such as fraud, money laundering, or terrorist financing.
2. Protecting Customers and Platforms – By confirming the legitimacy of your transactions, both you and the platform benefit from a safer environment. This system helps maintain public trust, reduces risk, and safeguards everyone’s financial well-being.
3. Transparency and Accountability – Clear documentation of how you acquired your funds reassures both regulators and service providers that your transactions align with legal requirements. This transparency ultimately speeds up your account-related processes and ensures smoother operations for your crypto activities.

What Counts as Proof of Funds

“Source of Funds” refers to any documentation confirming where the money used for your cryptocurrency transactions originates. In cases involving large sums of crypto, additional proof may be required to demonstrate how and when those assets were obtained.

1. Crypto Assets Purchased on Exchanges or Brokers

• Purchase & Withdrawal Screenshots
  Provide clear images reflecting the transaction details, purchase confirmation, withdrawal records, and account ID.
• Confirmation Emails
  Forward emails proving the purchase and withdrawal from the exchange or broker.
• OTC Receipts
  If you bought crypto through an over-the-counter (OTC) broker, present any receipts or invoices verifying the transaction.

2. Trading Profits From Exchanges or Brokers

• Transaction History
  Submit screenshots or logs showing how the profit was generated and withdrawn to your wallet or another platform.
• Account Details
  Demonstrate that the exchange or broker account belongs to you, including your username or account ID, in conjunction with the trading records.

3. Income From Services (e.g., Affiliate Income or Freelance Work)

• Service Description
  Explain the nature of the service that generated the cryptocurrency income.
• Receipts for Crypto Payments
  If you were paid in crypto, provide evidence of these transactions.
• Origin of Crypto
  Clarify how the individual or entity paying you in crypto acquired those assets, if available.

4. Initial Coin Offerings (ICOs) and Token Sales

• Contract or Agreement
  Present documentation showing the purchase of tokens with crypto.
• ICO Details
  Include the project’s official name and website.
• Transaction Logs
  Display the wallet addresses, transaction IDs, and steps illustrating token purchase and subsequent transfers.
• Bank Statement (If Applicable)
  If you used fiat, show a statement confirming your investment outlay.
• Email Confirmations
  Share any official emails that detail the purchase.

5. Mining

• Hardware Receipts
  Provide bills of sale for mining equipment, including the name of both buyer and seller.
• Operating Costs
  Electricity bills or other operational expenses in your name can help confirm legitimate mining activity.
• Mining Rewards
  Screenshots or statements showing the earned rewards.
• Wallet Transactions
  Include wallet addresses and transaction IDs demonstrating the movement of mined crypto (note that self-created spreadsheets alone are not accepted).

 6. Staking (Master Nodes)

• Deposits & Withdrawals
  Show transaction history indicating your staking deposits, rewards, and payouts.
• Platform Transfers
  If you moved funds to a platform like Nexo, include screenshots of those transfers.
• Wallet Addresses & IDs
  Clearly document all relevant addresses and transaction identifiers.ted).

7. Airdrops

• Transaction Records
  Provide evidence of the airdropped tokens, including any subsequent deposits or withdrawals.
• Wallet Details
  Include the addresses and transaction IDs that show the timeline of receiving airdropped assets.

8. Coin or Token Swaps

• Swap Confirmation
  Include screenshots or transaction logs showing wallet addresses, transaction IDs, and any relevant confirmations.

9. Lending and Liquidity Pools

• Collateral Records
  Provide details on where you sourced the assets used as collateral and their quantities.
• Transaction History
  Show wallet addresses and transaction IDs for deposits, withdrawals, and any yield or interest earned.

Common Sources of Funds for Fiat (With Document Examples)

1. Salary

• Payslip or Tax Statement: Demonstrates your earned income.
• Bank Statement: Shows your salary entering your account and the balance from which the crypto deposit originated.

2. Property Sale

• Contract of Sale or Land Registry/Title Deed: Verifies the sale transaction.
• Bank Statement: Indicates that proceeds from the sale were deposited into your account.

3. Savings

• Bank Statement: Must cover at least three months, showing sufficient funds to cover your crypto purchase.
• Visible Dates and Amounts: Ensures transparency of the savings over time.

4. Loan

• Loan Agreement: Outlines the loan details and amounts.
• Bank Statement: Displays the loan being deposited into your account.

5. Inheritance

• Testament or Executor’s Letter: Confirms the inheritance details.
• Bank Statement: Indicates the date and amount of the inheritance deposit.

6. Gift or Donation

• Affidavit or Donor Letter: Explains the nature of the gift.
• Bank Statement: Reflects the actual deposit into your account.

7. Pension Fund

• Pension Fund Statement (If Available): Shows the fund details and disbursement.
• Bank Statement: Verifies the pension payment was credited to your account.

8. Tax Refund

• Recent Tax Return: Displays the refund amount.
• Bank Statement: Demonstrates the deposit of the tax refund into your account.

9. Other

• Official Documentation: Any credible evidence supporting how you acquired your funds.
• Bank Statement: Must clearly show the relevant deposit amounts and match the timeline in question.

Your supporting documents should meet the following criteria:

• Accepted Formats: PDF, PNG, JPG, or JPEG
• Complete Visibility: All four corners of each document must be visible if it’s a scanned copy or photo.
• Clear Identification: Your name, relevant dates, transaction details, and balances should be easy to read.
• Minimal Redaction: You may obscure highly sensitive details, such as Social Security numbers or credit card information, but inbound and outbound transactions must remain visible.
• Relevant to the Time Period: The statements or documents must correspond to the timeframe of the funds you’re trying to verify and reflect recent account balances.

Tips for Submitting Your Documents

• Ensure Readability: Make sure every critical piece of information—dates, names, amounts—is clear.
• Highlight Relevant Transactions: Though your bank statement might have multiple entries, your recent balances and the transactions related to the source of funds are most important.
• Minimal Redaction: Cover only what’s necessary for privacy; keep proof of deposits and account ownership visible.
• Timely Updates: Provide documents that reflect the current state of your finances, especially if significant time has passed or large transactions have occurred since your initial submission.

Regulatory Differences by Region

Varying Standards
Different countries and regions have their own set of reporting requirements and AML/KYC regulations. For instance, some jurisdictions may enforce stricter documentation rules or lower thresholds for what they consider “large” transactions.

Cross-Border Implications
If you’re moving funds internationally, you might face additional steps or scrutiny. It’s essential to be aware of each country’s specific rules to avoid delays or complications.

AML and KYC Best Practices

Identity Verification
Platforms typically require users to verify their identity with government-issued IDs or other formal documentation. This step confirms that the person opening the account is who they claim to be.

Transaction Monitoring
Once your account is set up, the platform monitors your transactions to detect any irregularities. Unusual activity or large, unexplained deposits may trigger requests for additional documents or explanations.

Risk Assessment
Depending on the nature of your transactions and your account activity, you may be classified under different risk tiers. Higher-risk accounts or larger transaction amounts might be subject to enhanced due diligence requirements, such as more frequent Source of Funds checks.

Final Thoughts

Verifying the Source of Funds helps crypto providers fulfill legal obligations and maintain a secure, transparent environment for all users. By promptly providing accurate and relevant documents, you’ll enjoy smoother transactions and fewer delays.