TL;DR

A nest cryptocurrency broker provides its clients with cryptocurrency services through an account with another broker. It does not facilitate trading directly. Instead, it acts as a bridge between users and other service providers. Nest is commonly used in traditional banks to provide services that a specific bank cannot, such as international transfers.

In the cryptocurrency space, nest exchanges often have lax or no KYC and AML processes at all. This lack of compliance is often exploited by cybercriminals. Nest brokers help support money laundering, scammers, and ransomware payments.

When you trade with a nest broker, you are entrusting them with custody of your assets. They provide less security and fewer guarantees than a compliant centralized or decentralized exchange. You may also face legal issues when dealing with brokers in previously sanctioned nests.

When using a broker, you should make sure it has adequate KYC and AML checks. These processes usually take days to complete. If the broker allows you to trade almost instantly and without limits, you should investigate further. A legitimate broker doesn't hide how trades are made, and you can easily view the origin of your funds in a blockchain explorer.

Introduction

It is essential to negotiate the purchase and sale of cryptocurrencies using a reliable website. However, you need to be patient when completing KYC and AML checks to stay safe. For this reason, some users choose to use brokers that offer little or no registration verification and offer instant trading.

While some may be legitimate decentralized exchanges, others may be nest exchanges that deal in stolen and laundered funds. Your funds are never safe with a nest broker. To ensure your cryptocurrency is safe, it's important to understand what nest exchanges are, what they do, and how you can recognize them.

What is nesting?

Nesting occurs when a financial service provider creates an account with another financial institution to use its services. The account holder then acts as a bridge, offering services to their customers through the nest account. This occurs for several reasons. For example, a bank in one country provides its banking services and ecosystem to a bank operating in a different country, known as a correspondent bank.

Imagine a customer who wants to transfer money to a bank account in Australia. Your bank may not be able to do this, but it can use a correspondent bank to transfer the funds to the customer. The customer's bank would process the transfer request through their nest account at the corresponding bank. The correspondent bank must take care of and conduct due diligence on the bank it works with. The correspondent bank basically serves customers they don't know, so they have to trust the nest account holder.

What is a Nest Cryptocurrency Broker?

A nested cryptocurrency exchange works in a very simple way. An entity or person creates an account with a regulated brokerage. They then use this account to offer trading services to third parties through their nest accounts. These brokers are sometimes known as instant brokers and often have multiple accounts with different brokers.

Some may ask for identification documents, but others may require little or no identification. This makes them a popular choice for scammers, fraudsters, and ransomers. Some nest brokers even allow you to buy and sell cryptocurrencies in person for cash.

How dangerous is the nest?

When it comes to traditional finance, one of the biggest problems is the risk of money laundering. Since the correspondent bank only deals directly with the underlying bank, they cannot be sure who they are dealing with. This is why nesting requires enhanced due diligence checks on the underlying bank. Individuals or entire countries may receive negative ratings and sanctions. If an underlying bank fails to comply with these rules, the responding bank could end up supporting illegal activities, such as failing to comply with sanctions or for money laundering.

Because the cryptocurrency industry is still developing robust regulations, it is easier for nest exchanges to operate under the radar. A nest broker can open an account with a large cryptocurrency broker without being easily noticed.

What are the dangers of a nest cryptocurrency broker?

When you use a nest cryptocurrency exchange, you don't just harm centralized exchanges. You and your funds are also in danger for several reasons:

1. Your deposits are less secure than with a regulated broker.

2. You may be supporting illegal activities that finance crime and terrorism.

3. Regulatory authorities may shut down the exchange, causing you to lose your cryptocurrency or other funds.

4. You may face legal repercussions if you knowingly work with a broker that is involved in illicit activities.

The best way to avoid this is to not use nest cryptocurrency brokers. Identifying them can be complicated, as it is not always obvious. Follow our tips for a better chance of protecting yourself.

What is the difference between a nest exchange and a decentralized exchange?

At first, a nest exchange and a decentralized exchange look similar. Decentralized exchanges do not require KYC, and nest exchanges may have light KYC processes, or none at all. However, the way they handle transactions is different. A decentralized exchange will connect buyers directly to sellers or even use liquidity pools. The broker will never take custody of the traded cryptocurrency. Instead, smart contracts handle the process. However, a nest broker will take direct custody of your cryptocurrency and use the services of another broker.

The Suex nest broker incident

Let's look at a real-world example. On September 21, 2021, the Office of Foreign Assets Control (OFAC) sanctioned cryptocurrency exchange Suex, incorporated in the Czech Republic and operating in Russia. Suex OTC provided a nest cryptocurrency broker service using Binance and other major exchanges to serve its customers. Suex used little to no KYC and even offered cryptocurrency trading with in-person cash delivery.

According to Chainalysis research, Suex helped launder a high volume of funds from ransomware attacks and hacks. Binance proactively disabled several accounts associated with Suex, and OFAC blacklisted nearly 30 different Bitcoin, Tether, and Ethereum wallets. Binance also delisted Chatex, a cryptobank with ties to Suex. Chatex has since faced sanctions from OFAC. Anyone who traded with Suex is at risk of being legally liable, and their website has been taken down since the OFAC ruling.

How to identify a nest broker?

Typically, nested brokers don't make it obvious what they actually are. The following points are a good start to identifying a nested broker and keeping you and your funds safe:

1. They do not require KYC or AML verification or have a minimum requirement. It draws attention when registration with the broker is almost instantaneous and without limits.

2. The UI does not clearly show where the trading takes place.

3. There is no clear statement that the broker is facilitating trades. A legitimate broker directly shows where trading takes place through its platform, which does not happen with a nest account.

4. The broker adds different rates for you to choose from. This means that the broker is using nested accounts with multiple brokers.

5. If you suspect you used a nest exchange, try tracking your cryptocurrency on the blockchain with Blockchain Explorer. You may find that it came from a wallet associated with another brokerage.

Final considerations

You are always safer buying your bitcoin, BNB, and other digital currencies with a regulated cryptocurrency exchange like Binance. While it may take a while to sign up for the first time, proper KYC and AML procedures help keep you safe. You should treat a broker as you would any other financial institution and do your due diligence before using them.