Author: Beosin
With the global proliferation of cryptocurrencies and the rapid growth of cryptocurrency users in Southeast Asia, on-chain capital flows in the region are becoming increasingly frequent and complex. To gain a deeper understanding of the flow characteristics of on-chain capital in Southeast Asia, potential financial risks, and the connections to illegal industries, Beosin conducted this in-depth analysis based on 10,000 blockchain address samples extracted from 2020 to the present (e.g., 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 associated with cryptocurrency use in Southeast Asia but also explores the reasons behind this phenomenon from a macro perspective and offers related 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 exhibits unique characteristics in economic structure, policy environment, and user behavior, particularly in the following aspects:
1. Rapid User Growth: The high proportion of young people in Southeast Asia, combined with the widespread use of mobile internet, has led to a rapid increase in the number of cryptocurrency users in the region. It is estimated that there are already tens of millions of cryptocurrency users in this area.
2. Strong Demand for Cross-Border Payments: The large number of cross-border laborers in Southeast Asia has led to the widespread use of cryptocurrencies as a convenient means of cross-border payment.
3. Inconsistent Regulatory Environment: The regulatory policies for virtual currencies vary across Southeast Asian countries; some countries support the legalization of cryptocurrencies, but most regions have not formed a clear regulatory framework, leading to a certain degree of compliance risk in capital flows.
Sample Analysis and Key Findings
Chart: Diagram of Fund Flows
Chart: Distribution of Addresses Flowing to Web3 Wallets
1. Free Flow of Funds Situation
In this analysis of 10,000 blockchain addresses, approximately 45.23% of the funds circulated freely on public chains through decentralized wallets, exhibiting high liquidity and decentralization characteristics. The total amount of freely circulating funds reached $1.484 billion, indicating that decentralized trading methods have become mainstream among Southeast Asian users.
2. Association with the Black and Grey Industries
Among these addresses, over $110 million in funds flowed directly to addresses associated with the black and grey industries, accounting for more than 12%. Further tracking of the remaining addresses' fund flows revealed that through secondary or multiple transactions, some addresses also established indirect connections with the black and grey industries, raising the ratio of risk addresses associated with the black and grey industries to 16.82%. This means that among the tens of millions of cryptocurrency users in Southeast Asia, there may be millions of users who have direct or indirect capital transaction risks with the black and grey industries.
Chart: Association with the Black and Grey Market
Analysis of Capital Flows and Risks in the Black and Grey Industries
1. Typology of Black and Grey Industry Addresses
Beosin categorizes addresses closely related to the black and grey industries into three main 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 dispatch and money laundering
● Fraudulent Platforms: Involving false investments, Ponzi schemes, killing pigs, etc.
Among these high-risk address types, over 240 specific entities related to the black and grey industries are involved.
2. High-Risk Capital Flow Phenomenon
Research results indicate that certain specific categories of capital flows are particularly significant:
● More than $10 million in funds flowed directly to addresses related to underground banks, with transaction frequencies accumulating to thousands.
● Approximately $11 million in funds clearly flowed to online gambling platforms.
● Over $22 million in funds have been funneled into fraudulent platforms.
Such capital flows reveal the complexity and concealment of activities in the black and grey industries, particularly under the anonymity and cross-border characteristics of cryptocurrencies, enabling criminals to frequently conduct illegal fund transfers and money laundering activities.
Chart: Funds Flowing to the Black Market
Capital Inflows to Sanctioned Platforms
1. Proportion of Capital Inflows to Sanctioned Platforms
Among the funds directly associated with the black and grey industries, approximately 53.49% flowed to sanctioned platforms, with related transaction counts even being twice that of the underground banks, totaling over $55 million, indicating that sanctioned platforms remain the primary inflow point for high-risk funds.
2. Case Study: Tornado Cash
As a commonly used mixing tool, Tornado Cash received over $54 million in funds in this study, accounting for 97.84% of all 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 declined, demonstrating the effective suppression of its capital inflows due to sanctions.
Chart: Trends and Proportions of Funds Flowing to Tornado Cash
Macro Risk Analysis and Cause 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 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 Framework in Southeast Asia: The cryptocurrency regulatory measures in Southeast Asian countries are still incomplete, leading to increased risks of cross-border capital flows. Some regions remain cautious about cryptocurrencies and have not adopted proactive regulatory measures, providing space for the flow of funds in the black and grey industries.
3. Socioeconomic Environment: The economic development level in some Southeast Asian countries is low, and the wealth gap is significant, leading many scammers and online gambling platforms to use this area as a base, mainly attracting foreign participants.
4. Technical Challenges in Regulation: Cryptocurrency exchanges, wallet service providers, and decentralized platforms often struggle to effectively monitor and investigate the risks behind transactions due to technical and structural limitations. 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 enhance monitoring through KYC and AML measures, cross-chain transactions and anonymity technologies still complicate fund flow tracking, increasing security risks.
Conclusion and Recommendations
Analysis of on-chain capital flows in Southeast Asia indicates a high level of security risk in cryptocurrency usage in the region. To effectively reduce the risk of illegal on-chain capital 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 develop clear regulatory frameworks for virtual currencies based on different national conditions.
2. Enhance User Risk Recognition: Increase anti-fraud education for ordinary users to help them understand on-chain risks and enhance their ability to identify and prevent funds associated with the black and grey industries.
3. Promote Technological Innovation: Actively develop and apply on-chain tracking and anti-money laundering technologies, accurately identifying and combating high-risk capital flows through big data analysis, artificial intelligence, and other technological means.
4. Establish Multi-Party Coordination Mechanisms: Encourage cryptocurrency exchanges, wallet service providers, and related institutions in Southeast Asia to collaborate, strengthen information sharing and risk prevention, and improve on-chain security.
Southeast Asia, as one of the most promising regions for cryptocurrency development, still faces challenges related to capital flow risks in the future. Beosin will continue to invest resources and technology, collaborating with various sectors to build a secure, transparent, and compliant cryptocurrency ecosystem. By strengthening regulation, enhancing user awareness of safety, and promoting technological innovation, we aim to gradually reduce illegal on-chain capital flows and promote the healthy development of Southeast Asia's digital economy.
