Article source: Beosin
With the global popularity of cryptocurrencies and the rapid growth of cryptocurrency users in Southeast Asia, the on-chain capital flow in this region has become increasingly frequent and complex. To gain a deeper understanding of the characteristics of capital flows in Southeast Asia, potential financial risks, and 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 marking different types of risk capital flow paths, 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 reasons for this phenomenon from a macro perspective and proposes relevant recommendations.
Overview of the Southeast Asian cryptocurrency market
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 economic structure, policy environment, and user behavior, particularly in the following aspects:
1. Rapid user growth: The high proportion of young population in Southeast Asia, coupled with the widespread adoption of mobile internet, has led to a rapid increase in cryptocurrency users in the region. It is estimated that there are tens of millions of cryptocurrency users in this 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, thus it is widely used.
3. Regulatory environments vary: Southeast Asian countries have inconsistent regulatory policies regarding virtual currencies; some countries support the legalization of cryptocurrencies, but most regions have yet to establish clear regulatory frameworks, leading to certain compliance risks in capital flows.
Sample analysis and key findings
Chart: Illustration of capital flow
Chart: Distribution of addresses flowing to Web3 wallets
1. Situation of free capital flow
Among the 10,000 blockchain addresses analyzed, approximately 45.23% of funds flowed freely on public chains through decentralized wallets, exhibiting high liquidity and decentralized characteristics. The total amount of freely flowing capital reached 1.484 billion USD, indicating that decentralized trading methods have become mainstream among Southeast Asian users.
2. Association 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 more than 12%. Further tracking of the remaining addresses' capital flows found 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 cryptocurrency users in Southeast Asia, there may be millions of users with indirect or direct risks of financial transactions related to the black and gray industries.
Chart: Associations with the black and gray markets
Capital flow and risk analysis of the black and gray industries
1. Typology of addresses in the black and gray industries
Beosin categorizes addresses closely related to the black and gray industries into three major categories and 44 subcategories through risk labeling, with the high-risk categories mainly including:
● Mixing services: Mainly used to anonymize capital flows
● Underground money houses: Used for cross-border illegal capital dispatch and money laundering
● Fraud platforms: Involving false investments, Ponzi schemes, and other scams
Among these high-risk address types, more than 240 specific entities in the black and gray industries are involved.
2. High-risk capital flow phenomena
Research results show that certain specific categories of capital flow are particularly significant:
● Over 10 million USD of funds have directly flowed into addresses related to underground money houses, with a cumulative transaction frequency reaching thousands.
● Approximately 11 million USD of funds explicitly flowed to online gambling platforms.
● Over 22 million USD of funds have been funneled into fraud platforms.
This type of capital flow reveals the complexity and concealment of black and gray industry activities, especially under the anonymity and cross-border characteristics of cryptocurrency, enabling criminals to frequently conduct illegal capital transfers and money laundering activities.
Chart: Capital flowing to the black market
Capital inflow situation of sanctioned platforms
1. Proportion of capital inflow to sanctioned platforms
Of the funds directly associated with the black and gray industries, approximately 53.49% flowed to sanctioned platforms, with relevant transaction occurrences being twice that of those flowing to underground money houses, totaling over 55 million USD, indicating that sanctioned platforms remain the primary inflow for high-risk capital.
2. Case Study: Tornado Cash
As a commonly used mixing tool, Tornado Cash received over 54 million USD in this study, accounting for 97.84% of all capital inflows to sanctioned platforms. However, since the U.S. Treasury listed Tornado Cash as a sanctioned entity in August 2022, its transaction volume has significantly decreased, demonstrating the effective suppression of its capital inflow by sanctions.
Chart: Trends and proportions of funds flowing to Tornado Cash
Macroeconomic risk analysis and causation discussion
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 technical means are used to label risk addresses, funds can still obscure their flow through mixing and other technical methods, facilitating money laundering activities.
2. Lack of regulatory systems in Southeast Asia: The cryptocurrency regulatory measures in Southeast Asian countries are still not perfect, leading to increased risks in cross-border capital flows. Some regions remain watchful towards cryptocurrencies and have not adopted proactive regulatory measures, providing space for the flow of capital in the black and gray industries.
3. Socioeconomic environment: Some countries in Southeast Asia have relatively low levels of economic development and significant wealth disparities, which have led many fraudsters and online gambling operators to use this region as a base, primarily 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 structural limitations. Decentralized platforms, in particular, lack direct control over transaction data, making it hard to timely identify malicious activities or risks such as money laundering. Although some centralized platforms attempt to strengthen monitoring through KYC and AML measures, cross-chain transactions and anonymous technologies still complicate the tracking of capital flows, increasing security risks.
Conclusions and recommendations
The analysis of on-chain capital flows in Southeast Asia indicates a high level of security risk in cryptocurrency use in this region. To effectively reduce the risks of illegal capital flows on-chain, Beosin recommends the following measures:
1. Strengthening regulatory mechanisms: Governments should formulate and implement comprehensive cryptocurrency regulatory policies, combat illegal on-chain capital activities through international cooperation, and establish clear virtual currency regulatory frameworks tailored to different national circumstances.
2. Enhancing users' ability to identify risks: Increase anti-fraud education efforts for ordinary users to help them understand on-chain risks, enhancing their ability to recognize and prevent funds related to the black and gray industries.
3. Promoting technological innovation: Actively develop and apply on-chain tracking and anti-money laundering technologies, using big data analysis, artificial intelligence, and other technical means to accurately identify and combat high-risk capital flows.
4. Establishing a multi-party collaborative mechanism: Encourage cryptocurrency exchanges, wallet service providers, and related institutions in Southeast Asia to work together, 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 capital flow risks. Beosin will continue to invest resources and technology, collaborating with various parties to build a secure, transparent, and compliant cryptocurrency ecosystem. By strengthening regulation, enhancing user safety awareness, and promoting technological innovation, we hope to gradually reduce illegal capital flows on-chain and promote healthy development of the digital economy in Southeast Asia.
