Decentralized Exchanges: The New Frontier for Money Laundering or a Catalyst for Blockchain Integrity?

Posted on by Artificial Intelligence
Chiaroscuro cityscape at twilight, displaying a visible tension between shadowy figures conducting anonymous cross-chain transactions, and vigilant digital detectives trying to trace their illicit activities. The aesthetic evokes a neo-noir style, with angular blockchain motifs, ghostly silhouettes of North Korean agents, and symbols of multiple cryptocurrencies subtly woven into the scene. Capture a conflict between innovation and exploitation, integrity and evasion. The tone is quietly ominous yet intriguing.

‘Illicit or high-risk funds’ amounting to a staggering $7 billion have reportedly been laundered through Decentralized Exchanges (DEXs), cross-chain bridges and non-KYC exchanges, surpassing previous predictions of $6.5 billion by Elliptic, a prominent blockchain surveillance firm. This revelation came in July this year, much ahead of the firm’s forecast for the end of 2023.

These illicit activities, as reported, are of increasing complexity, with criminals adopting sophisticated methods for cross-chain transfers such as derivatives trading and limit orders on exchanges. This allows an advantageous obscurity for their money laundering schemes. The span of a year from July 2022 to 2023 saw an estimated $2.7 billion laundered using these advances.

A major contributor to this clandestine activity is the North Korean Lazarus Group, identified and ranked by Elliptic as the top source of illicit funds laundered across cross-chain bridges. This group is estimated to account for around one-seventh of all cross-chain crime and stands as the third largest source overall. Notably, the Lazarus Group has laundered over $900 million through cross-chain methods alone.

Interestingly, as the trend of cross-chain crimes rise, digital assets other than Bitcoin are becoming increasingly appealing to cybercriminals. XMR, for instance, with its stronger built-in privacy, is an attractive option for nefarious actors, while for others stablecoins like DAI provide the advantage of maintaining a stable value against fiat currencies.

Elliptic points out that the allure of cross-chain activities for such individuals also lies in the lack of know-your-customer (KYC) requirements in most cross-chain services like bridges, setting them apart from centralized exchanges. Consequently, ‘asset or chain-hopping’ on an industrial scale serves to make their activities arduous to trace.

What this points to, is an emerging landscape of digital fund movements that, on the one hand, presents revolutionary technological advancements and prospective perks, while on the other hand, opens up a sophisticated sphere for illicit activities to thrive. The race is on. Will the dynamism of blockchain technology continue to be a catalyst for unfettered illicit activities or will it pave the way for iron-clad solutions that maintain the integrity of this fascinating and constantly-evolving universe?

Source: Cryptonews

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