Chainalysis: DeFi Protocols For Money Laundering See Increased Utility In 2021

Cybercriminals Laundered Crypto Worth $8.6 Billion in 2021

The blockchain analytics company Chainalysis, published a report on Wednesday (January 26, 2022), stating that cryptocurrency laundering in 2021 totaled $8.6 billion, indicating a 30% increase from the figure recorded in 2020. In comparison, 2019 saw the all-time high (ATH) at $10.9 billion, with 2018 recording the lowest activity of crypto-related money laundering activity, at $3 billion. Furthermore, Chainalysis noted a slight increase in money laundering concentration, with 58% of the total funds laundered in 2021 moving to five centralized exchanges, compared to 54% recorded in 2021. The report does not mention the exchange platforms.

According to Chainalysis, cryptocurrencies are becoming a preferred method for money launderers to obscure their funds. Between 2017 and 2021, cybercriminals laundered more than $33 billion worth of cryptocurrency. Most of the funds were moved to centralized exchanges (CEXes).

However, Chainalysis noted that the figure seemed minute compared to the estimated $800 billion to $2 trillion worth of fiat laundered annually. An excerpt from the report said:

“The biggest difference between fiat and cryptocurrency-based money laundering is that, due to the inherent transparency of blockchains, we can more easily trace how criminals move cryptocurrency between wallets and services in their efforts to convert their funds into cash.”

Chainalysis meanwhile, discovered that in 2021, more funds from illicit addresses went to decentralized exchanges (DEXes) than CEXes, a first-time occurrence since 2018. According to the report, CEXes accounted for less than half of the funds laundered, at 47%. Chainalysis further noted that crypto mixers, mining pools, and high–risk exchanges provided additional means for hackers to participate in money laundering activities.

DeFi for Thefts, CEXes for Scams

The report noted that theft and scamming, which were “the highest-grossing forms of cryptocurrency-based crime in 2021”, had different laundering techniques. According to a previous report earlier in January, North Korean hackers stole about $400 million in cryptocurrency and predominately used DeFi platforms to launder the funds.

The blockchain analytics firm noted that these hackers also preferred to use “mixers” for money laundering. Meanwhile, the report said:

“Scammers, on the other hand, send the majority of their funds to addresses at centralized exchanges. This may reflect scammers’ relative lack of sophistication. Hacking cryptocurrency platforms to steal funds takes more technical expertise than carrying out most scams we observe, so it makes sense that those cybercriminals would employ a more advanced money laundering strategy.”

Chainalysis noted that the total figure generated in 2021 was related to “cryptocurrency-native” crime, which the report describes as cybercriminal activities such as ransomware attacks, where profits are converted to crypto. However, the firm said that it was difficult to calculate the amount of fiat–obtained from offline criminal activities like drug trafficking–that has been converted to cryptocurrency for money laundering.

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