Bad Actors Launder Funds Through DEX, Bridges, and Coin Swap – Elliptic

Research conducted by blockchain analytic firm Elliptic shows that criminals and bad actors have used decentralized exchanges (DEXs), cross-chain bridges, and ‘coin swap’ services to launder over $4 billion gotten from illicit crypto activities in the last two years.

Most of these illicit activities are conducted by hackers, dark web markets, illicit virtual asset services, Ponzi schemes, and ransomware providers. While these tools have legal use cases, they are most times used as tools for perpetrating crimes.

The use of cross-chain bridges has become more rampant in the crypto ecosystem affecting digital assets service providers and criminal investigators like in the case of crypto mixing company Tornado Cash which was said to have obfuscated the source of over $7 billion since its inception.

In the case of Tornado Cash which was recently sanctioned by the U.S Treasury Department, it uses a mixing or tumbling technology to hide the original source of the digital assets.

Cryptocurrencies from different sources are introduced into a mixing pool. After successfully mixing, the digital assets are sent out in bits to participants who introduced their crypto into the pool. 

Currently, the crypto mixing company is facing a cutback in its number of weekly unique users on its platform and the number of transactions performed.

Blockchain Tools For Illegal Use

Several users utilize the anonymity that the tool provides to keep their asset value unknown while bad actors use it to perpetrate crimes. An Elliptic spokesperson reaffirmed this fact in an interview. 

“To be clear, Elliptic is not saying DEXs or bridges are used exclusively by criminals, in fact, the opposite is true, they are mostly used by legitimate users. But Elliptic has traced illicit funds (from hacks etc) that have been moved through DEXs and bridges in order to obfuscate their origin,” the spokesperson said.

Another cross-chain bridge identified by Elliptic is RenBridge. This tool is a popular cross-chain bridge used by many to swap digital assets across different blockchains.

Singly, bad actors have leveraged the RenBridge to launder up to $540 million in crypto assets. The Financial Action Task Force (FATF) recently called out this cross-chain transaction in June speaking of its risk.

Attempting to break down the number of losses from each tool, Elliptic stated that about $1.2 billion have been laundered through DEXs and another $1.2 billion through coin swaps. The tools whose service has led to more loss are cross-chain or cross-asset. A total loss of $1.8 billion has been recorded.