With the global proliferation of cryptocurrencies and the rapid growth of cryptocurrency users in Southeast Asia, the on-chain fund flows in the region have become increasingly frequent and complex. To gain a deeper understanding of the characteristics of fund flows in Southeast Asia, potential financial risks, and connections with 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). By tracking and labeling 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 risks of cryptocurrency usage in Southeast Asia but also explores the underlying causes of this phenomenon from a macro perspective and offers related recommendations.
Overview of the Cryptocurrency Market in Southeast Asia
In recent years, the acceptance and popularity of cryptocurrency 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 several aspects:
1. Rapid User Growth: With a high proportion of young people in Southeast Asia and the widespread adoption of mobile internet, the number of cryptocurrency users in the region has grown rapidly. It is estimated that there are already tens of millions of cryptocurrency users in the region.
2. Strong Demand for Cross-Border Payments: The large number of cross-border laborers in Southeast Asia makes cryptocurrencies a convenient means for cross-border payments, leading to widespread adoption.
3. Inconsistent Regulatory Environments: Southeast Asian countries have varying regulatory policies for virtual currencies; some support the legalization of cryptocurrencies, but most regions have not formed clear regulatory frameworks, resulting in certain compliance risks in fund flows.
Sample Analysis and Main Findings
Chart: Fund Flow Diagram
Chart: Distribution of Addresses Flowing to Web3 Wallets
1. Situation of Free Flow of Funds
In this analysis involving 10,000 blockchain addresses, approximately 45.23% of funds flowed freely on public chains through decentralized wallets, exhibiting high liquidity and decentralization characteristics. The total amount of freely flowing funds reached $1.484 billion, indicating that decentralized trading methods have become mainstream among Southeast Asian users.
2. Associations with the Black and Gray Industry
Among these addresses, over $110 million in funds directly flowed to addresses related to the black and gray industry, accounting for over 12%. Further tracking the fund flows of the remaining addresses revealed that through secondary or multiple transactions, some addresses also established indirect connections with the black and gray industry, causing the proportion of risk addresses associated with the black and gray industry to rise to 16.82%. This indicates that among tens of millions of cryptocurrency users in Southeast Asia, there may be millions of users who have direct or indirect risks of fund transactions with the black and gray industry.
Chart: Associations with the Black and Gray Market
Analysis of Fund Flows and Risks in the Black and Gray Industry
1. Typology of Black and Gray Industry Addresses
Beosin categorizes addresses closely related to the black and gray industry into three major categories and 44 subcategories through risk labeling, with high-risk categories primarily including:
● Mixing Services: Mainly used to anonymize fund flows.
● Underground Banks: Used for cross-border illegal fund dispatch and money laundering
● Scam Platforms: Involving false investments, Ponzi schemes, and other fraudulent activities.
Among these high-risk address types, over 240 specific entities in the black and gray industry are involved.
2. High-Risk Fund Flow Phenomenon
Research results show that certain specific categories of fund flows are particularly notable:
● More than $10 million in funds directly flowed into addresses related to underground banks, with transaction frequencies totaling thousands.
● Approximately $11 million in funds clearly flowed to online gambling platforms.
● Over $22 million in funds were channeled into scam platforms.
Such funding flows reveal the complexity and concealment of black and gray industry activities, particularly under the anonymity and cross-border characteristics of cryptocurrencies, enabling criminals to frequently engage in 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 industry, approximately 53.49% flowed to sanctioned platforms, and the number of related transactions was even double that of those flowing to underground banks, with a total value exceeding $55 million, indicating that sanctioned platforms remain a primary inflow destination for high-risk funds.
2. Case Study: Tornado Cash
As a commonly used mixing tool, Tornado Cash received over $54 million 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 declined, demonstrating the effective suppressive effect of sanctions on its fund inflows.
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 flowing on-chain. Even if technical means are used to label risk addresses, funds can still obscure their flow through mixing and other techniques, facilitating money laundering activities.
2. Lack of Regulatory Systems in Southeast Asia: The regulatory measures for cryptocurrencies in Southeast Asian countries are still inadequate, leading to increased risks of cross-border fund flows. Some regions remain cautious about cryptocurrencies and have not adopted proactive regulatory measures, providing space for fund flows in the black and gray industry.
3. Socioeconomic Environment: Some countries in Southeast Asia have low levels of economic development and significant wealth gaps, leading many scammers and online gambling operators to use this region as a base, primarily attracting foreign participants.
4. Technical Regulatory Challenges: Due to technological and structural limitations, cryptocurrency exchanges, wallet service providers, and decentralized platforms often struggle to effectively monitor and investigate the risks behind transactions. Decentralized platforms particularly lack direct control over transaction data, making it difficult to timely identify malicious behaviors or risks such as money laundering. Although some centralized platforms attempt to enhance monitoring through KYC and AML measures, cross-chain transactions and anonymity technologies still complicate the tracking of fund flows, increasing security risks.
Conclusions and Recommendations
Analysis of on-chain fund flows in Southeast Asia indicates a high security risk associated with cryptocurrency usage in the region. To effectively reduce the risks of illegal fund flows on-chain, Beosin recommends the following measures:
1. Strengthening regulatory mechanisms: Governments should formulate and implement comprehensive cryptocurrency regulatory policies, combating illegal on-chain fund activities through international cooperation, and establishing clear virtual currency regulatory frameworks tailored to different national conditions.
2. Enhancing User Risk Recognition Capabilities: Increase anti-fraud education efforts for ordinary users, helping them understand on-chain risks and enhancing their ability to recognize and prevent black and gray industry funds.
3. Promoting Technological Innovation: Actively develop and apply on-chain tracking and anti-money laundering technologies, precisely identifying and combating high-risk fund flows through big data analysis, artificial intelligence, and other technological means.
4. Establishing a Multi-Stakeholder Coordination Mechanism: Encourage cryptocurrency exchanges, wallet service providers, and related institutions in Southeast Asia to collaborate, strengthen information sharing and risk joint prevention, and improve on-chain security.
As one of the regions with the greatest potential for cryptocurrency development, Southeast Asia still faces challenges regarding fund flow risks in the future. Beosin will continue to invest resources and technology, collaborating with various sectors to build a safe, transparent, and compliant cryptocurrency ecosystem. By strengthening regulation, enhancing user awareness of security, and promoting technological innovation, we hope to gradually reduce illegal fund flows on-chain and promote the healthy development of the digital economy in Southeast Asia.
