The year 2022 was filled with a lot of events ranging from protocol hacks, L1 crash, exchange implosion, hedge fund wind down but aside from these events, one of the most trends noticed in the market is the rise of underground money laundering systems. This trend was contained or captured in a Report by Chainalysis.
The case with these underground money laundering systems is that they are similar to other Web3 criminal infrastructure but with certain uniqueness including being accessible via private messaging apps or browsers like the Tor, and are popular majorly on darknet forums.
The report also noted that “some function simply as networks of private wallets, while others are more akin to an instant exchanger or mixer”. In general, they serve as spots where criminals can transfer stolen money to and they are converted to other forms of currencies and sent back to these criminals.
Concentration of money laundering at fiat off-ramps
The report showed that money laundering activities have also been concentrated on fiat off-ramp services in 2022. Money laundering in crypto is always initiated through either of these two services: intermediary services and wallets, and fiat off-ramps.
The first includes the use of wallets, mixers, and darknet markets by crypto thieves to hold their assets, obfuscate their movement, or swap between assets.
Fiat off-ramps allow cryptocurrencies to be changed for fiat. Chainalysis explained that this is the most effectively used for money laundering because it becomes hard to trace funds on-chain “as the funds can no longer be traced via blockchain analysis once they hit a service”.
The report also highlighted that despite a large number of fiat off-ramp services, a little percentage of them were used to facilitate the movement of these illicit funds. An example cited by Chainalysis is where “51% of the $6.3 billion in illicit funds received by fiat off-ramp services in 2022 went to a group of just 542 deposit addresses”.
Illicit addresses sent over $23 billion worth of cryptocurrency in 2022
Explaining the number of funds transferred by illicit addresses in 2022, Chainalysis puts the figure at over $23 billion. This surpasses the 2021 data by 68%. Most of these illicit addresses were connected to centralized exchanges, from where these cryptocurrencies are converted to fiat and ready for quick spending.
The report also revealed that “more illicit funds were sent to DeFi protocols than ever before” which reflected the same trend in 2021. From these DeFi platforms, assets are then moved to other services such as Mixers, DEXes, and off-ramp infrastructures (centralized exchanges).
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