Author: Beosin
With the global popularity of cryptocurrency and the rapid growth of crypto users in Southeast Asia, the on-chain capital flow 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 connections with illegal industries, Beosin conducted this in-depth analysis based on a sample of 10,000 blockchain addresses extracted from 2020 to present (e.g., Southeast Asian personal wallets/Southeast Asian exchange users). By tracking and labeling different types of risk capital flow paths, we found that the risk level involved in the circulation patterns of crypto assets exceeded expectations. This report not only reveals the usage risks of cryptocurrency in Southeast Asia but also explores the reasons behind this phenomenon from a macro perspective and provides relevant 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 the following aspects:
1. Rapid User Growth: The high proportion of young people in Southeast Asia, along with the proliferation of mobile internet, has led to rapid growth in the number of crypto users in this region. It is estimated that there are tens of millions of crypto users in the region.
2. Strong Demand for Cross-border Payments: The large number of cross-border laborers in Southeast Asia makes cryptocurrency a convenient means of cross-border payment, hence it is widely used.
3. Regulatory Environment Varies: The regulatory policies on virtual currencies in Southeast Asian countries are uneven; some countries support the legalization of cryptocurrency, but most regions have yet to form a clear regulatory framework, leading to certain compliance risks in fund flows.
Sample Analysis and Key Findings
1. Status of Free Fund Circulation
Among the 10,000 blockchain addresses analyzed, approximately 45.23% of the funds circulate freely on public chains through decentralized wallets, showing high liquidity and decentralization characteristics. The total amount of freely circulating funds reaches $1.484 billion, indicating that decentralized trading methods have become mainstream among users in Southeast Asia.
2. Association with Black and Gray Industries
Among these addresses, over $110 million in funds directly flowed to addresses related to the black and gray industries, accounting for over 12%. Further tracking of the fund flows of the remaining addresses revealed that through secondary or multiple transactions, some addresses also had indirect connections with the black and gray industries, raising the proportion of risk addresses associated with black and gray industries to 16.82%. This means 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.
Analysis of Capital Flows and Risks in Black and Gray Industries
1. Typology of Black and Gray Industry Addresses
Beosin has categorized addresses closely related to the black and gray industries into 3 major categories and 44 subcategories through risk labeling, with the high-risk categories mainly including:
● Mixing Services: Mainly used for anonymizing fund flows.
● Underground Banks: Used for cross-border illegal fund scheduling and money laundering.
● Scam Platforms: Involving false investments, Ponzi schemes, 'killing foreign plates', 'killing pig plates', etc.
Among these high-risk address types, there are over 240 specific entities related to the black and gray industries.
2. High-risk Capital Flow Phenomenon
Research results show that certain specific categories of capital flows are particularly significant:
● Over $10 million in funds directly flowed into addresses related to underground banks, with cumulative transaction frequencies reaching thousands.
● Approximately $11 million in funds clearly flowed to online gambling platforms.
● Over $22 million in funds were channeled into scam platforms.
This type of fund flow reveals the complexity and concealment of black and gray industry activities, especially under the anonymity and cross-border characteristics of cryptocurrency, which allows criminals to frequently conduct illegal fund transfers and money laundering activities.
Fund Inflow Situation of 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 doubling that of flows to underground banks, totaling over $55 million, indicating that sanctioned platforms remain a major inflow area 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 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 suppressive effect of sanctions on its fund inflows.
Macro Risk Analysis and Cause Exploration
1. Anonymity and High Liquidity of Cryptocurrency: The anonymity of cryptocurrency makes it difficult to trace illegal funds as they flow on-chain. Even if there are technical means to label risk addresses, funds can still obscure their flow through techniques such as mixing, facilitating money laundering activities.
2. Lack of Regulatory System in Southeast Asia: The regulatory measures for cryptocurrency in Southeast Asian countries are still inadequate, leading to increased risks in cross-border fund flows. Some areas still maintain a wait-and-see attitude towards cryptocurrency and have not taken proactive regulatory measures, providing space for the flow of funds in black and gray industries.
3. Socioeconomic Environment: Some countries in Southeast Asia have relatively low levels of economic development and significant wealth disparities, leading many scammers and online gambling operations to use this region as a base, mainly attracting foreign participants.
4. Technical Regulatory Challenges: Cryptocurrency exchanges, wallet service providers, and decentralized platforms often find it difficult to effectively monitor and investigate the risks behind transactions due to technical and architectural limitations. Decentralized platforms particularly lack direct control over transaction data, making it impossible to timely identify malicious behavior 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
The analysis of on-chain fund flows in Southeast Asia indicates that there are significant security risks in cryptocurrency usage in this region. To effectively reduce the risks of illegal fund flows on-chain, Beosin recommends the following measures:
1. Strengthen Regulatory Mechanisms: Governments should formulate and implement complete regulatory policies for cryptocurrency, and combat illegal on-chain fund activities through international cooperation, introducing clear regulatory frameworks for virtual currencies tailored to different national conditions.
2. Enhance User Risk Awareness: Increase anti-fraud education for ordinary users to help them understand on-chain risks and improve their ability to identify and prevent black and gray industry funds.
3. Promote Technological Innovation: Actively develop and apply on-chain tracking and anti-money laundering technologies to accurately identify and combat high-risk capital flows through techniques such as big data analysis and artificial intelligence.
4. Establishing a Multi-party Coordination Mechanism: Encourage cryptocurrency exchanges, wallet service providers, and related institutions in Southeast Asia to collaborate, strengthen information sharing and risk joint defense, 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 in the future. Beosin will continue to invest resources and technology, collaborating with various parties to build a safe, transparent, and compliant cryptocurrency ecosystem. By strengthening regulation, raising user security awareness, 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.
