Money Laundering Picks Up Steam on DeFi Protocols: Chainalysis

·2 min read
seksan Mongkhonkhamsao

Money laundering through decentralized finance (DeFi) protocols is gaining popularity with cybercriminals, according to new research from blockchain analytics firm Chainalysis.

Cybercriminals laundered at least $8.6 billion in cryptocurrency in 2021, the firm said in research published Wednesday – a 30% jump in money laundering activity from 2020. Decentralized protocols received 17% of crypto sent by illicit addresses last year, up from a mere 2% in 2020.

And DeFi is not the only crypto-related money laundering method on the rise: Mining pools, high-risk exchanges and mixers also received an increased amount of crypto from wallets tied to criminal activity last year. However, Chainalysis’ research suggests the largest group of crypto criminals still prefer to launder their money the old fashioned way, through centralized exchanges.

Centralized exchanges received nearly half of all crypto sent by cybercriminals in 2021. Nearly half of the 8.6 billion worth of crypto laundered went through centralized exchanges last year; of that, 58% went to just five trading platforms, pointing to a growing concentration of services.

Kim Grauer, Chainalysis’ director of research, highlighted a growing dichotomy between the types of cybercrime that are gaining in popularity (i.e., scamming vs. theft) and where the funds end up.

“People tend to think of cryptocurrency crime as being one thing, but it couldn’t be more varied. It couldn’t be more different in the way that criminals use [crypto] and have a digital footprint over how they manage money,” Grauer told CoinDesk.

Crypto obtained through theft, which is more technically challenging and more often taken up by organized groups – including North Korea-affiliated hacking groups, which stole $400 million in crypto last year – is substantially more likely to be laundered through DeFi protocols and mixers.

Read more: North Korean Hackers Stole $400M in 2021, Mostly in Ether

“There are certain types of criminals in particular that lean into technological advancements more quickly,” Grauer said. “North Korea is always the first to use a new kind of tech solution for laundering money. We follow them each year, and this year they've used a lot of mixers. Last year they were using DeFi.”

Scammers, however, are more likely to use centralized exchanges. According to Chainalysis’ report, this “may reflect scammers’ relative lack of sophistication.”

In the coming year, Grauer and her team expect to see an uptick in crypto crime involving non-fungible tokens (NFT).

This year “is already off to a big start for NFT crime,” Grauer said, pointing to the rise in wash trading on NFT platform LooksRare. “This is definitely going to continue.”