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US$4B In Money Laundering On DEXs, Bridges And Coin Swaps: Elliptic

source-logo  coinculture.com 09 October 2022 04:29, UTC

According to Elliptic researchers, financial criminals have laundered billions using popular crypto technologies.

Since 2020, cybercriminals have used decentralised exchanges (DEXs), cross-chain bridges, and non-KYC exchange services (called coin swaps) to shift roughly $4 billion in illegal cash, according to “The state of cross-chain crime report 2022” report.

The company explained that while these technologies often have legitimate applications, they are increasingly used to process cash associated with illegal operations such as thefts, dark web services, mixing, frauds and Ponzi schemes, ransomware, and others.

“To be clear, Elliptic is not saying DEXs or bridges are used exclusively by criminals, in fact, the opposite is true, they are mostly used by legitimate users. But Elliptic has traced illicit funds (from hacks etc) that have been moved through DEXs and bridges in order to obfuscate their origin,” an Elliptic spokeswoman told The Block.

In their analysis, Elliptic researchers categorised their findings for these blockchain-based applications, beginning with DEXs. Since 2020, DEXs have facilitated the transfer of $1.2 billion in illicit assets. DEXs are protocols that enable the execution of buy and sell orders using smart contracts. Illegal usage of DEXs is strongly related to exploits in the decentralised finance (DeFi) area and hacks of centralised exchanges.

How DeFi works. Image: FT

Cross-chain bridges are the second most popular tool that Elliptic discovered among thieves. Here, Elliptic researchers say that since 2020, criminals have channelled approximately $750 million in illegal payments across cross-chain bridges, a practice referred to by Elliptic as chain hopping. The connections allow users to move assets between blockchain networks. The bulk of illegal assets passing across bridges, about $540 million, was handled by RenBridge, a Bitcoin and Ethereum cross-chain bridge.

The research went on to clarify that criminals generally use blockchain-based tools like DEXs and bridges for money laundering or to conceal their on-chain behaviour to make it more challenging to catch them. Both methods aim to conceal transaction traces and make inquiries more challenging.

The third technique described in the paper is coin swaps, or cryptocurrency exchange services that do not need Know Your Customer (KYC) verification. These allow users to exchange assets within and between blockchains without creating an account. According to Elliptic, coin swaps are primarily promoted on Russian cybercrime forums and cater nearly entirely to criminals. Since 2020, they have accounted for $1.2 billion in unlawful transactions.

coinculture.com