After studying some early on-chain transaction records of Meme coins, I noticed that Meme coins have become one of the important tools for criminals to launder money. Due to the increasing regulatory strength of exchanges against Tornado Cash, traditional mixers and split transfer methods can no longer meet the needs of criminals. However, the characteristics of Meme coins make them an efficient tool for on-chain money laundering.
How do criminals use Meme coins for money laundering?
The following are common operational steps used by criminals:
Creating Token and Liquidity Pool (LP)
First, criminals create a new Token on the Ethereum chain and set up a corresponding liquidity pool (LP) for it.Inject clean funds
Use a portion of clean funds to purchase some Tokens, creating initial transaction records.Pump the market with dirty money
Use dirty money for large purchases to drive up the Token's price until it attracts wild buying (i.e., ordinary investors).Dumping chips
Criminals sell off their early holdings at high prices, converting dirty money into legally traded profits on-chain.
Through such operations, criminals use decentralized exchanges (like Uniswap) to complete the isolation of dirty money from the final profits, making the flow of funds difficult to trace.
Metaphorical analogy of Meme coin money laundering
If I were to explain this money laundering technique with a vivid metaphor, Meme coins are like a poker game in Texas Hold'em. It's not just a simple probability game, but a game of 'pot allocation' — the earlier you enter the pot, the more likely you are to profit from subsequent participants.
More specifically, this money laundering technique is similar to two people colluding to participate in a Texas Hold'em poker game: one person holds the dirty money and intentionally loses it to the other person. When law enforcement tracks down the criminals, the person no longer has the dirty money. Meanwhile, the winning side may have already dispersed the funds through complex on-chain transactions, with potentially more than one beneficiary. At this point, can law enforcement recover these funds? The difficulty is unimaginable.
The bull market of Meme coins and the surge in money laundering difficulty
Currently, there is a crazy bull market for Meme coins on-chain. Once a large number of ordinary investors engage in trading, the difficulty of tracking money laundering will rise sharply to 'hell-level'. Even more astonishing is that sometimes hackers use dirty money to pump the market, resulting in a situation where not only have they successfully laundered the proceeds, but they also unexpectedly made a big profit.
New challenges after Tornado Cash regulation
Since the developers of Tornado Cash were arrested, major exchanges have begun to conduct strict checks on the interaction behaviors of on-chain mixers. Once a user's deposit or withdrawal address is found to be associated with Tornado Cash, the user's funds may be frozen. Although this 'better wrong than missed' strategy has indeed suppressed hackers to some extent, it also brings the risk of inadvertently harming innocent users.
However, 'the law is one foot high, and the devil is ten feet high'. As the regulation of Tornado Cash intensifies, criminals are turning their attention to new money laundering tools like Meme coins. In this regard, I also want to ask major exchanges and security companies: Have you developed countermeasures against the aforementioned money laundering techniques? How can you effectively combat on-chain money laundering while protecting ordinary users?