Between 2019 and today, around $100 billion in illegal funds have flowed into the cryptocurrency market from suspicious digital wallets. Their flows often passed through centralized exchanges and were often associated with popular stablecoins, reported Bloomberg citing data from the American blockchain analysis firm Chainalysis.
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According to research by Chainalysis, criminals are actively using stablecoins, which currently account for a significant portion of the volume of illegal transactions in cryptocurrency. At the same time, more than half of all dubious flows are on centralized exchanges. Issuers of stablecoins Tether and Circle have not yet responded to Bloomberg’s request to comment on this publication.
While regulations around stablecoins and digital asset platforms are tightening around the world to prevent cryptocurrency from being used for money laundering and terrorist financing, criminals continue to find ways to circumvent the rules.
“The ecosystem is constantly changing,” said Kim Grauer, director of research at Chainalysis. “New cryptocurrencies and criminal use cases are emerging, and they are becoming more sophisticated in their laundering.”
Illicit funds from darknet markets, fraudulent transactions, ransomware and malware are concentrated on five centralized exchanges, Chainalysis said without naming them. In addition to trading platforms, criminals also use decentralized financial services, gambling sites, crypto mixers and blockchain bridges to launder money.
“Illicit actors may turn to centralized exchanges to launder money due to their high liquidity, ease of converting cryptocurrency into fiat, and integration with traditional financial services that help combine illicit funds with legitimate activity,” Chainalysis experts said.
At the same time, the volume of suspicious funds flowing into exchanges is decreasing, apparently due to increased scrutiny of platforms amid tighter regulation by authorities. According to research by Chainalysis, the flow of suspicious funds has fallen to about $780 million per month from a peak of almost $2 billion.
In an effort to hide the illicit origins of funds, attackers are increasing the number of intermediate digital wallets. And their number is growing faster on exchanges that comply with the Know Your Customer (KYC) rule, Chainalysis notes. As illicit schemes become more sophisticated, investigators have begun to use detection methods such as behavioral analysis.
According to DeFiLlama, the total market value of stablecoins has grown to more than $160 billion from about $29 billion at the start of 2021. Tether Holdings’ USDT token dominates the market with a 69% share, followed by Circle Internet Financial’s USDC with 21%.
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