Licensing is no longer “nice to have” in crypto. Providers, payment partners, and even serious clients now ask first: are you licensed, are you banked, can you prove you’re not chaotic. The good news is that most teams fail for the same predictable reasons — and those reasons are fixable early, before code is frozen. For the formal path, scope expectations, and regulatory positioning across multiple jurisdictions, see crypto license.
Why licensing matters more now than it did two years ago
Two or three years back, a team could call itself an “infrastructure layer,” open an EMI/PSP account, and go to market with no real story around compliance. That window is gone. Banking partners no longer want high-concept pitch decks. They want a narrow version one, a custody model that doesn’t sound made up, and proof that onboarding, screening, and transaction monitoring are actually running. Regulators want the same thing, which is convenient — it means one coherent story, told consistently, can satisfy both sides.
Mistake #1: Building the entire product first and only then thinking about licensing
Teams still treat compliance like something you “layer on at the end.” The pattern looks like this: ship a fat feature set (spot + leverage + staking + on/off-ramp), put live users on it, then ask counsel “how do we wrap this in a license quickly.” That approach burns months, and sometimes forces a rollback in production that looks bad to early adopters.
The way out is to work the other direction. Version one should be small, boring, and legally defensible on day one. That usually means: spot only, no leverage, a short list of high-liquidity assets, and clear disclosures that explain fees/spreads in plain English. Staking, synthetic yield, derivatives, exotic listings — those can still happen, but they belong in phase two, under governance, with documented board approval and policy updates. Scaling is a sequence problem, not a lawyering problem.
Mistake #2: Describing the activity as “a crypto platform”
“Crypto platform” is not a business model. It doesn’t tell a reviewer what is actually being offered and it doesn’t tell a bank what risk it’s underwriting. When activity is vague, two bad things happen. First, the regulator starts asking broad, open-ended questions, because they can’t tell what license class you should sit in. Second, banking partners assume you’re hiding something.
The fix is unglamorous: write a two-minute narrative in normal language. Who uses the product. Which assets and corridors are live at launch. What the user can actually do (buy, sell, move, hold, pay). Where revenue comes from (spread, fee, SaaS-style access). How funds or tokens travel from onboarding to withdrawal. That text then becomes the reference for your website, contracts, compliance policies, and application. When everybody hears the same wording, pushback drops fast.
Mistake #3: Having no custody posture anyone can defend upstream
This is where a lot of founders lose credibility instantly. “Client funds are secure, we use multi-sig and best-in-class cold storage,” sounds good to marketing, but banking is going to ask “who can move money, under what circumstances, and can you prove segregation.”
A custody posture that survives second-order questions is short and specific. Where keys live (HSM, audited multisig, or a named qualified custodian). Who can initiate and who can approve movements (not personal names — roles). What limits apply to withdrawals (velocity, amount thresholds, allow-lists for higher-risk cohorts, dual approvals). How client assets are segregated from company funds. How often reconciliation is run, who signs off, and where that evidence is saved.
The important part is proof. One withdrawal approval log extract plus one reconciliation snippet tying balances to the ledger does more than five pages of adjectives. If that evidence doesn’t exist yet, the product isn’t actually “ready” for licensing, no matter what the roadmap slide says.
Mistake #4: Treating Travel Rule like a future nice-to-have
There is still a reflex to say “Travel Rule will be added post-licensing.” That answer used to get a pass. Now it mostly just triggers delays.
The modern expectation is: you’ve already picked an interoperable Travel Rule provider, you’ve wired it for your main corridors, and you can show message traces. Not just a success path. A non-participant case, and how you handled fallback. Those screenshots and timestamps live in the same folder as the rest of your evidence. When you can attach those to an email in under 30 seconds, you look like a grown-up. When you can’t, the conversation drags into policy theory instead of execution.
Mistake #5: Walking into a bank meeting with a pitch deck instead of a compliance pack
The banking conversation is not “we’re building the future of finance.” The banking conversation is four straight answers:
Ownership: Who ultimately owns and controls the company, with IDs and proof of address for directors and UBOs. No shell games, no mystery trusts. Just a clean chart that makes sense.
Activity: What the product actually does on launch date, in plain English, with numbers (corridors, expected volume brackets, who the users are). The wording must match what’s on the website and in the contracts you’re sending customers.
Flow of funds: How value moves, step by step, from onboarding to funding to action to withdrawal. Which currencies, which assets, which jurisdictions. Where you touch money or custody and where you don’t.
Safeguards: How illicit activity is blocked and how client assets are ring-fenced. That means KYC/KYB, sanctions screening, ongoing monitoring, escalation notes, dual-control withdrawals, reconciliation with sign-off, and Travel Rule coverage.
Hand that in as a one-pager plus a handful of screenshots/logs, and onboarding tends to feel almost boring (which is perfect). Walk in with “we’re innovative and disruptive,” and the risk officer marks you as work.
Fixing the sequence: how mature teams run licensing instead
First, they whiteboard the full transaction flow — onboarding, funding, action, withdrawal — and mark exactly who can move keys or funds at each point. That tells them (a) are we in VASP scope, and (b) where we’re exposed. Second, they freeze version one on paper. No leverage. No staking. No 25-token launch menu. Just the smallest possible business that can be defended in front of a regulator and a bank.
Third, they align all language. The two-minute narrative is copied into the application draft, the website landing page, the early customer contract, and the compliance policies. Fourth, they collect proof as they configure systems — screenshots of onboarding and screening, logs from monitoring, approval trails for withdrawals, reconciliation extracts, Travel Rule traces — instead of waiting until “submission week.”
This is the opposite of how most early-stage crypto teams operate. That’s why the ones who do it look instantly more professional and get fewer slow, high-friction questions.
What goes in the “evidence folder” (the thing that wins or loses the review)
The high-performing teams keep a single structured folder that never goes out of date. It usually has five core items.
First: onboarding. A real user flow (or test account if allowed) with KYC/KYB result screenshots, plus a sanctions hit example and how it was handled. That kills the “do you even screen” question instantly.
Second: monitoring. One alert, analyst notes, timestamp, and disposition. Doesn’t have to be heroic. It just has to look like a real human made a real judgment call based on a real rule.
Third: custody. A withdrawal approval log that shows dual control, plus a reconciliation extract. That answers two of banking’s biggest “we’re nervous” questions in 20 seconds.
Fourth: Travel Rule. Message traces from your key corridors. Success, non-participant, fallback. Screenshotted, timestamped, labeled. Done.
Fifth: governance. Board or management minutes appointing a Compliance Officer with a direct reporting line, plus sign-off on the current policies. That shows the program is owned at the top, not bolted on at the last minute.
Once you have this folder, 80% of follow-ups from both regulators and financial partners become copy/paste instead of “we’ll get back to you.”
Cost thinking that doesn’t blow up three months in
Founders tend to ask “How much does a license cost?” like there’s a single number. That’s not how this works. Costs spread across three buckets: (1) one-off setup — advisory, application prep, drafting your AML/CTF, sanctions, monitoring, custody, and disclosure policies, (2) technology and security — KYC/KYB provider, sanctions and Travel Rule vendor, custody tooling, monitoring stack, maybe pen-testing if you’re touching real balances, and (3) ongoing compliance — officer time, periodic reporting, audits, training, renewals. Underfund any one of the three, and the missing piece comes back as delay, refusal, or a bank that quietly says “not right now.” All of those are more expensive than getting it right the first time.
Why all of this is worth doing before you’re “big enough”
The obvious reason is regulatory pressure. The less obvious reason is sales. Serious partners now expect you to show that you understand custody, segregation, Travel Rule, and AML/CTF as operational systems — not as buzzwords in a deck. Being able to say “here is our approval log, here is our reconciliation, here are the Travel Rule traces, here’s who signs off and when” is not just paperwork. It’s how you signal “we’re not improv.” That signal, in 2025, wins deals.
Final note
Most teams don’t have time to assemble the story, the governance record, the evidence bundle, and the application while also shipping product. That’s where specialized advisory firms step in: align the product’s actual flows with licensing expectations, capture artifacts as proof, build a bank-ready narrative, and keep all wording consistent across every surface (site copy, contracts, policies, filing). That’s the model firms like legalbison.com work on — practical first, paperwork second, so the first version you ship can actually survive contact with a regulator and a risk officer.