Chain analysis weighs on the wallet hop

With cybercriminals increasingly taking advantage of mixers, on-chain bridges and hops between intermediate wallets to hide the origin and movement of their funds, crypto-native money laundering is becoming sophisticated.

The industry has witnessed several harmful exploits involving intricate layers that demonstrate the advanced methods used to hide ill-gotten funds.

Layers in Crypto

The stages of money laundering vary greatly. In traditional fiduciary systems, this could involve routing funds through multiple bank accounts and shell companies. In cryptography, however, a popular method of overlaying involves sending funds through various intermediary personal wallets, known as “hops”.

According to the latest Chainalysis report shared with CryptoPotato, this tactic is designed to obscure the connection between illicit funds at the initial placement stage and their eventual integration.

In chain laundering, intermediate wallets are crucial, often handling more than 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 on-chain operations.

Illicit flows. Source: Chainalysis

Each jump increases fees for illicit actors, suggesting that these extra steps are motivated in part by a desire to evade detection by crypto services’ law enforcement and compliance teams. The number of intermediary wallets between illicit wallets and conversion services usually corresponds to the total amount of illicit activity observed. For example, the use of intermediary wallets peaked at the end of 2022, a year that saw the highest total value of cryptocurrency received by illicit addresses.

A growing portion of illicit funds passing through intermediary wallets are stablecoins.

Chainalysis suggests that the increased use of stablecoins may reflect the wider adoption of these assets in recent years. Both legitimate and illicit actors tend to prefer stablecoins for their stable value, mainly because these assets are not affected by intense market volatility. However, the use of stablecoins presents a risk for money laundering: issuers can freeze these funds.

Status 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.

Value received by mixers. Source: Chainalysis

In particular, Tornado Cash has seen strong growth over the past year despite a steep decline in usage following its ban in 2022. The same cannot be said for Samourai, which was expected to be a standout performer this year year, but its growth has slowed sharply following the Justice Department’s action against its founders and CEO in April 2024.

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