Money Laundering in DeFi Sectors Shoots by 263% In the First 2 Quarters of 2022
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Money Laundering in DeFi Sectors Shoots by 263% In the First 2 Quarters of 2022

Elizabeth Kerr
Elizabeth Kerr
25th Jan 2023
  • DeFi platforms are increasingly becoming the conduits of crypto money laundering.
  • A CryptoMonday analysis shows that there's been a 263% surge in the vice.
  • North Korean hackers are the prominent players in this space.

Decentralized Finance (DeFi) promises to change the financial landscape radically. Principally, it'll expand financial inclusion to the masses excluded by the current systems. But as is with any good thing, it's susceptible to abuse. Incidences of DeFi fraud have been rising since 2020.

CryptoMonday has been studying the developments in the DeFi sector. Its analysis 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 of 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?

Illegal DeFi transactions have ballooned in their raw values and also share of all transacted value. The 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 decentralized. That means that they allow for peer-to-peer (P2P) trading of cryptos. That P2P nature can make tracking transactions a difficult endeavor.

Secondly, unlike centralized exchanges (CEXs), DeFi platforms don't stress on Know Your Customer (KYC) information. That is in keeping with their private and confidential nature. Thus they are attractive to criminals looking to obscure their exchanges.

North Koreans 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 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 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 DPRK crypto laundering racket.

Tackling Crypto Laundering Needs Concerted Efforts

The amount of funds stolen from DeFi platforms has been growing. It peaked in 2022 due to the Wormhole Network and Ronin Bridge hacks. But that trend can be reversed by operators collaborating with the public to stamp out the vice. Moreover, successfully doing so will help build the confidence of new users in the technology.

Author Bio
Elizabeth Kerr
Elizabeth Kerr
Elizabeth ist eine Finanz-Content-Spezialistin aus Manchester. Zu ihren Spezialgebieten gehören Kryptowährung, Datenanalyse und Finanzregulierung.