Source of funds

• Backward tracing: identifying the origins of funds received by an address or cluster under investigation, tracing them through preceding transactions towards the entities or events from which they came. As tracing moves backwards, in some cases the flow branches across multiple addresses and sources, increasing the number of paths to investigate. Analysts should therefore define stopping criteria, such as an amount threshold, a maximum number of hops or the identification of a relevant service or originating event.

In AML compliance, source of funds refers to the origin of the money used in a specific transaction or business relationship, such as salary, business income or proceeds from an asset sale. It is distinct from source of wealth, which concerns the origin of the customer's overall assets. In this glossary, source of funds refers to on-chain backward tracing unless otherwise specified.