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Money laundering within DeFi up by 263% says industry study

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Recent analysis of the DeFi sector carried out by CryptoMonday shows that money laundering in the sector has grown by 263% in the first two quarters of 2022. At press time, DeFi protocols have been conduits of up to 69% of funds associated with illicit activity, a significant upsurge from 19% in 2021.

“Bad actors are showing a growing preference for Defi protocols in executing their nefarious plans,” affirms CryptoMonday’s CEO Jonathan Merry.

He adds, ” While illicit activity within the entire crypto ecosystem has significantly decreased, it’s in the ascendency within the Defi space. The sector seems to be going through the same teething challenges that crypto faced a while back which explains that uptick in the last couple of years.”

What’s behind the surge in illicit activity on DeFi protocols?

This vice takes two major forms: stealing funds through exploits and misusing DeFi protocols to launder funds. So why has there been this uptick?

The first reason is that Defi protocols are wholly decentralised. That means that they allow for peer-to-peer (P2P) trading of cryptos, making tracking transactions difficult.

Secondly, unlike centralized exchanges (CEXs), Defi platforms don’t stress on Know Your Customer (KYC) information. Thus they are attractive to criminals looking to obscure their exchanges.

North Korean’s lead in DeFi hacking

As hackers increasingly target DeFi platforms, an interesting development has emerged. North Korean hacking groups are behind most of the crypto heists here. These hacking groups have a close relationship with the North Korean Government.

A case in mind is the infamous Lazarus Group. These hackers used various Defi platforms to launder crypto worth $91m they had stolen from one CEX in 2021. So far, North Korean hackers have stolen over $840m from DeFi sites and may be behind similar hacks on CEXs.

Bolstering DeFi platforms’ security has taken an international security angle. That’s because there are suggestions that the proceeds from the North Korean hackings are used to support the DPRK weapons of mass destruction program. But the U.S is taking action, as evidenced by its sanctioning of a mixer it accuses of involvement in the DPRK crypto laundering racket.


Sanctions on cryptocurrency mixed Blender.io

In May the US Department of the Treasury’s Office of Foreign Assets Control said it was imposing sanctions on a cryptocurrency mixer called Blender.io, which is located in North Korea. Blender stands accused of laundering digital assets and supporting state-backed cyber attacks.

On March 23, 2022, Lazarus Group, a North Korean state-sponsored cyber hacking group, carried out the largest virtual currency heist to date, worth almost $620 million, from a blockchain project linked to the online game Axie Infinity; Blender was used in processing over $20.5 million of the illicit proceeds.

The US Treasury stated that it is also updating the List of Specially Designated Nationals and Blocked Persons to identify additional virtual currency addresses used by the Lazarus Group to launder illicit proceeds. The US Treasury has said it is “committed to exposing components of the virtual currency ecosystem, like Blender, that are critical to the obfuscation of the trail of stolen proceeds from illicit cyber activity.”

Blender.io is a virtual currency mixer that operates on the Bitcoin blockchain and indiscriminately facilitates illicit transactions by obfuscating their origin, destination, and counterparties. Blender receives a variety of transactions and mixes them together before transmitting them to their ultimate destinations. While the purported purpose is to increase privacy, mixers like Blender are sometimes used by illicit actors.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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