Written by: Beosin
With the global popularity of cryptocurrencies and the rapid growth of crypto users in Southeast Asia, the on-chain flow of funds in this region has become increasingly frequent and complex. To gain deeper insights into the flow characteristics of on-chain funds in Southeast Asia, potential financial risks, and their connections to illegal industries, Beosin conducted this in-depth analysis based on a sample of 10,000 blockchain addresses extracted since 2020 (such as Southeast Asian personal wallets / Southeast Asian exchange users, etc.). By tracking and tagging the flow paths of different types of risk funds, we found that the risk levels involved in the circulation patterns of crypto assets exceeded expectations. This report not only reveals the usage risks of cryptocurrencies in Southeast Asia but also explores the macro-level reasons behind this phenomenon and provides relevant recommendations.
Overview of the Southeast Asian Cryptocurrency Market
In recent years, the acceptance and popularity of cryptocurrencies in Southeast Asia have significantly increased.
As an emerging market, Southeast Asia has unique characteristics in terms of economic structure, policy environment, and user behavior, particularly evident in the following aspects:
1. Rapid User Growth: The high proportion of young people in Southeast Asia, combined with the widespread adoption of mobile internet, has led to a rapid increase in the number of crypto users in the region. It is estimated that there are tens of millions of crypto users in this region.
2. Strong Demand for Cross-Border Payments: The large number of cross-border workers in Southeast Asia makes cryptocurrencies a convenient method for cross-border payments, leading to widespread use.
3. Inconsistent Regulatory Environment: The regulatory policies for virtual currencies in Southeast Asian countries vary significantly; some countries support the legalization of cryptocurrencies, but most regions have yet to form a clear regulatory framework, leading to certain compliance risks in fund flows.
Sample Analysis and Key Findings
Chart: Fund Flow Diagram
Chart: Distribution of Addresses Flowing to Web3 Wallets
1. Free Flow of Funds
Among the 10,000 blockchain addresses analyzed this time, approximately 45.23% of the funds flowed freely on the public chain through decentralized wallets, demonstrating high liquidity and decentralization characteristics. The total amount of freely flowing funds reached 1.484 billion USD, indicating that decentralized trading methods have become mainstream among users in Southeast Asia.
2. Connection with the Black and Gray Industries
Among these addresses, over 110 million USD of funds directly flowed to addresses related to the black and gray industries, accounting for over 12%. Further tracking of the fund flows from the remaining addresses revealed that through secondary or multiple transactions, some addresses also established indirect connections with the black and gray industries, raising the proportion of risk addresses associated with the black and gray industries to 16.82%. This indicates that among tens of millions of crypto users in Southeast Asia, there may be millions of users who have indirect or direct financial transaction risks with the black and gray industries.
Chart: Connection with the Black Market
Analysis of Fund Flows and Risks in the Black and Gray Industries
1. Typology of Black and Gray Industry Addresses
Beosin classifies addresses closely related to the black and gray industries into three major categories and 44 subcategories through risk labeling, with the main high-risk categories including:
Mixing Services: Mainly used for anonymizing fund flows
Underground Banks: Used for cross-border illegal fund scheduling and money laundering
Fraud Platforms: Involve false investments, Ponzi schemes, and other scams.
Among these high-risk address types, over 240 specific entities related to the black and gray industries are involved.
2. High-Risk Fund Flow Phenomenon
Research results show that certain specific categories of fund flows are particularly significant:
Over 10 million USD of funds directly flowed into addresses related to underground banks, with transaction frequencies totaling thousands.
Approximately 11 million USD of funds clearly flowed to online gambling platforms.
Over 22 million USD of funds were directed into fraud platforms.
Such fund flows reveal the complexity and concealment of black and gray industry activities, especially under the anonymity and cross-border characteristics of cryptocurrencies, which allow criminals to frequently conduct illegal fund transfers and money laundering activities.
Chart: Funds Flowing to the Black Market
Fund Inflows to Sanctioned Platforms
1. Proportion of Fund Inflows to Sanctioned Platforms
Among the funds directly associated with the black and gray industries, approximately 53.49% flowed to sanctioned platforms, with the number of related transactions even being double that flowing to underground banks, totaling over 55 million USD, indicating that sanctioned platforms remain a primary inflow destination for high-risk funds.
2. Case Analysis: Tornado Cash
As a commonly used mixing tool, Tornado Cash received over 54 million USD in funds during this study, accounting for 97.84% of all fund inflows to sanctioned platforms. However, since the U.S. Treasury Department listed Tornado Cash as a sanctioned entity in August 2022, its trading volume has significantly decreased, demonstrating the effective suppression of its fund inflows by sanctions.
Chart: Fund Flow Trends and Proportions to Tornado Cash
Macroeconomic Risk Analysis and Causes Exploration
1. Anonymity and High Liquidity of Cryptocurrencies: The anonymity of cryptocurrencies makes it difficult to trace illegal funds when they flow on-chain. Even if risk addresses are marked by technical means, funds can still obscure their flow through mixing and other techniques, facilitating money laundering activities.
2. Lack of Regulatory Framework in Southeast Asia: The cryptocurrency regulatory measures in various Southeast Asian countries are still imperfect, leading to increased risks in cross-border fund flows. Some regions remain on the sidelines regarding cryptocurrencies and have not adopted proactive regulatory measures, providing space for the flow of funds in the black and gray industries.
3. Socio-economic Environment: Some countries in Southeast Asia have a low level of economic development and a large wealth gap, leading many scammers and online gambling operations to use this region as a base, mainly attracting foreigners to participate.
4. Technical Regulatory Difficulties: Due to technical and structural limitations, cryptocurrency exchanges, wallet service providers, and decentralized platforms often find it challenging to effectively monitor and investigate the risks behind transactions. Decentralized platforms particularly lack direct control over transaction data, making it difficult to promptly identify malicious behaviors or risks such as money laundering. Although some centralized platforms attempt to strengthen monitoring through KYC and AML measures, cross-chain transactions and anonymity technologies still complicate fund flow tracking, increasing security risks.
Conclusions and Recommendations
Analysis of on-chain fund flows in Southeast Asia indicates a high level of security risk in cryptocurrency usage in this region. To effectively reduce the risks of illegal on-chain fund flows, Beosin recommends the following measures:
1. Strengthen Regulatory Mechanisms: Governments should formulate and implement comprehensive cryptocurrency regulatory policies, combat illegal on-chain fund activities through international cooperation, and introduce clear regulatory frameworks for virtual currencies based on different national conditions.
2. Enhance User Risk Identification Capabilities: Increase anti-fraud education for ordinary users to help them understand on-chain risks and enhance their ability to identify and prevent funds related to the black and gray industries.
3. Promote Technological Innovation: Actively research and apply on-chain tracking and anti-money laundering technologies, precisely identifying and combating high-risk capital flows through big data analysis and artificial intelligence.
4. Establish a Multi-party Coordination Mechanism: Encourage cryptocurrency exchanges, wallet service providers, and relevant institutions in Southeast Asia to collaborate, strengthen information sharing and risk joint prevention, and improve on-chain security.
As one of the most promising regions for cryptocurrency development, Southeast Asia still faces challenges related to fund flow risks. Beosin will continue to invest resources and technology to collaborate with various sectors, striving to build a safe, transparent, and compliant cryptocurrency ecosystem. By strengthening regulation, enhancing user security awareness, and promoting technological innovation, we hope to gradually reduce illegal on-chain fund flows and promote the healthy development of the digital economy in Southeast Asia.