With cybercriminals increasingly leveraging mixers, cross-chain bridges, and hops between intermediary wallets to obscure the origin and movement of their funds, crypto-native money laundering is getting sophisticated.
The industry has witnessed several damaging exploits involving intricate layering that demonstrate the advanced methods used to obscure illicitly obtained funds.
Layering in Crypto
The layering stages of money laundering vary widely. In traditional fiat systems, this might involve routing funds through multiple bank accounts and shell companies. In crypto, however, one popular method of layering involves sending funds through several intermediary personal wallets – known as “hops.”
According to Chainalysis’s latest report shared with CryptoPotato, this tactic is designed to obscure the connection between the illicit funds in the initial placement stage and their eventual integration.
In on-chain laundering, intermediary wallets are crucial, often handling over 80% of the total value moving through these channels. The growth in the number of intermediary wallets indicates that illicit actors are adding hops to increase the complexity of their operations on-chain.
Each hop raises the fees for illicit actors, suggesting that these extra steps are partly motivated by the desire to evade detection by law enforcement and compliance teams at crypto services. The number of intermediary wallets between illicit wallets and conversion services typically corresponds with the overall amount of illicit activity observed. For example, the use of intermediary wallets peaked in late 2022, a year that saw the highest total cryptocurrency value received by illicit addresses.
A growing portion of illicit funds passing through intermediary wallets are stablecoins.
Chainalysis suggests that the rise in stablecoin usage may reflect the broader adoption of these assets over recent years. Both legitimate and illicit actors often prefer stablecoins due to their stable value, primarily because these assets remain unaffected by intense market volatility. However, using stablecoins introduces a risk for money launderers: issuers can freeze these funds.
State of Mixers
Mixers have seen a resurgence in 2024, in line with the overall increase in market activity. After examining the growth of individual mixing services, Chainalysis found that WasabiWallet, JoinMarket, and Tornado Cash have shown the most significant increases.
Notably, Tornado Cash has experienced high growth over the past year despite a sharp decline in usage following its sanction in 2022. The same cannot be said for Samourai, which was expected to be a leading performer this year, but its growth has sharply declined following the Department of Justice’s action against its founders and CEO in April 2024.
