According to Bloomberg, nearly $100 billion in illicit funds have been distributed by suspect digital wallets across the crypto world. The report by Chainalysis reveals that bad actors are increasingly using stablecoins, which now account for the majority of the illicit transaction volume in crypto. More than half of all questionable flows end up on centralized exchanges.
Global officials are intensifying regulations for stablecoins and digital-asset platforms to curb the use of crypto in criminal activities such as money laundering and terrorism financing. However, lawbreakers continue to find ways to circumvent these rules. Stablecoins, which typically aim to maintain a steady value of $1 backed by reserves of cash and bonds, and centralized exchanges are the main pillars of the digital-asset market.
Illegal funds from sources like darknet markets, fraud, ransomware, and malware are concentrated in five centralized exchanges, according to Chainalysis. Criminals also utilize decentralized financial services, gambling sites, crypto mixers, and blockchain bridges for money laundering. The high liquidity of centralized exchanges, ease of converting cryptocurrency to fiat, and integrations with traditional financial services that help blend illicit funds with legitimate activities make them attractive to illicit actors.
However, the volume of suspect funds arriving at exchanges is decreasing, possibly due to the platforms increasing checks in response to stricter regulations. The figure has dropped to about $780 million a month from a previous peak of nearly $2 billion. The number of intermediary digital wallets, used by criminals to pass through funds to obscure their origin, is growing faster on exchanges that comply with know-your-customer rules. This is likely an attempt to avoid the detection of illicit activity.
The total market value of stablecoins has skyrocketed to over $160 billion from about $29 billion at the beginning of 2021. While they are primarily used by crypto speculators to park funds between trades, they can also be used for payments and remittances, indicating an increased interplay between digital assets and mainstream finance. Despite the risk of authorities freezing them, criminals continue to use stablecoins. As crypto becomes a more integrated financial asset, detection techniques like behavioral analysis are being employed to identify illegal schemes.