Financial Crime World

US Exchange Sent $36.7 Million Directly to Criminals in 2020

A recent investigation by CipherTrace has revealed that one prominent US exchange received more than $3.5 million worth of Bitcoin directly from criminal sources in 2020, despite strong Know Your Customer (KYC) measures. However, a closer look at the data reveals that the exchange actually sent a staggering $36.7 million to criminals over the same period.

DeFi Hacks and Scams on the Rise

The report used advanced analytics and machine learning algorithms to identify suspicious transactions and track them back to their origin. The results are alarming, with the majority of these criminal transactions being facilitated through decentralized exchanges (DEXs).

  • Nearly 99% of major fraud volume in 2020 stemmed from DeFi protocols performing rug pulls and exit scams.
  • Notable examples include the bZx hack, which saw $10 million stolen, as well as rug pulls by Compounder.Finance and Unicats.

Regulatory Attention Turning to DeFi

The report suggests that regulators are beginning to pay closer attention to DeFi and associated compliance requirements. The Financial Action Task Force (FATF) has already considered decentralized exchanges (DEXs) as Virtual Asset Service Providers (VASPs), and FinCEN applies the same regulatory consideration to DEXs.

  • The US Securities and Exchange Commission (SEC) has stated that DeFi projects are likely subject to various laws, including securities law, banking and lending laws, and anti-money laundering/combating the financing of terrorism (AML/CTF) laws.
  • Regulators may soon apply similar regulations to DeFi projects as they do to traditional financial institutions.

The Future of DeFi

The report concludes by emphasizing the need for greater transparency and accountability in the DeFi space. Without it, criminals will continue to exploit vulnerabilities and deceive investors.

  • Greater transparency and accountability are crucial to preventing criminal activity and ensuring the long-term success of DeFi.
  • Regulators, investors, and project developers all play a crucial role in shaping the future of DeFi.

Key Takeaways:

  • One US exchange sent $36.7 million directly to criminals in 2020
  • DeFi hacks and scams surged in 2020, with nearly 99% of major fraud volume stemming from rug pulls and exit scams
  • Regulators are beginning to pay closer attention to DeFi and associated compliance requirements
  • The future of DeFi hangs in the balance, with greater transparency and accountability needed to prevent criminal activity