This year's Chainalysis Crypto Crime Report shows what went down in 2022 and that sanctions can be enforced on DeFi protocols. The report covers:
Why 2022 set records for crypto hacking
How sanctions affect the crypto crime ecosystem
New tricks cybercriminals using for crypto money laundering
Illicit crypto volumes reached an all-time high in 2022
Centralized exchanges only received 0.3% of illicit funds decrease from the 5% of illicit funds that centralized exchanges received in 2020.
According to the report; Illicit transaction volumes hit an all-time high of $20.6 billion and It was observed that 43% of illicit volumes came from sanctioned entities, most from Garantex, a Russian crypto exchange.
Transaction volumes are not included in the measures of illicit activities. FTX and the other entities that went bust were not identified as criminal entities in the report.
The share of illicit activity rose from 0.12% in 2021 to 0.24% in 2022, the report cited that crypto-related scams and revenues are down drastically, but ransomware is on the rise.
According to the report, sanctions played a huge role in reducing crime activities, which were placed on platforms that aided illicit activities.
While it may seem like crypto is invisible, the report showed that centralized exchanges, fiat on/off ramp systems, and blockchain tracking tools make it possible to track bad actors.
Agencies like the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury can now implement sanctions on entities effectively.
Hydra, the largest darknet market, with over 68.2% of illicit funds consisting of fraud shops, ransomware, and cybercrime funds, was shut down in 2022.
Garantex, an exchange that received over $100 million in illicit transactions, was also sanctioned.
OFAC also sanctioned a number of other cryptocurrency exchanges, including SUEX and CHATEX.
In 2022, Tornado Cash, a DeFi protocol many thought was invisible was sanctioned as a result of money laundering by a North Korean hacking group.
As reported by Chainalysis, 2022 was an impactful year in the fight against ransomware. Ransomware attackers extorted at least $456.8 million from victims in 2022, down from $765.6 million. The drop shows the reduced willingness of victims to pay ransoms and improved cybersecurity measures as the victim payment rate dropped from 76% in 2019 to 41%.
Funds being sent by illicit addresses increased by over 68% in the year 2022, these funds were moved through centralized exchanges and mixers to make it harder to trace funds’ origin (e.g., Tornado cash), DeFi protocols, and off-ramp tools.
As crypto platforms increased monitoring and compliance tools in 2022, the report stated that Individuals who engage in money laundering and other illicit activities**,** now use private messaging apps and Tor browsers. However, compared to the traditional financial investigation, there still a good chance for compliance and sanction enforcement, an advantage that the blockchain provides with its transparency.
2022 was a big year ever for crypto hacking. North Korean-linked hackers broke their previous record, pushing the total amount stolen to $3.8 billion. Most of these funds were moved using Tornado Cash. When it was sanctioned, activities moved to Sinbad, another mixer.
Let’s explain what a Mixer is: Mixers makes it impossible to trace crypto transactions by returning pre-mixed assets that break the link between the input and output assets.
In 2022, the Mango Markets protocol was hacked for $117 million. Avraham Eisenberg, the attacker used a flash loan to manipulate the price of SOL on a number of different exchanges. This allowed the attacker to buy Solana at a lower price and then sell it at a higher price, making a profit.
Oracle manipulation attacks were a major threat to DeFi protocols in 2022. These attacks involve hackers artificially inflating the price of a token by manipulating the price oracles that DeFi protocols use to get their pricing data. Once the price of the token has been inflated, the hackers can then take advantage of this inflated price to make a profit.
According to the report crypto scam revenue fell by 46% in 2022, due to the bear market. The scam revenue correlates closely with the price of Bitcoin, the bear market is spurring the rise in usage of stablecoins by scammers. According to the report, crypto scam is often underreported by victims because it’s closely related to pig butchering and also pump/dump scams.
Pig butchering scams involve bad actors promoting worthless tokens, often called a "shitcoin." They often use celebrity endorsements, influencers, or fake news articles to make the token seem legitimate. Once they have attracted investors, they will sell off their own tokens and disappear, leaving the investors with worthless coins.
Pump-and-dump token scams are similar to pig butchering scams, but they involve a coordinated effort to artificially inflate the price of a token. The scammers will buy up a large amount of the token and then promote it to unsuspecting investors. Once the price of the token has risen, the scammers will sell their tokens and take their profits, leaving the investors holding the bag.
Contrary to what some may believe, however, the report makes it clear that law enforcement agencies can investigate and sanction the activities of bad actors, scammers, and criminal enterprises in crypto, with the right tools. Crypto scams pose a serious threat to the crypto ecosystem. Recently, our analyst team has been investigating a pattern of crypto scams happening in Nigeria since the bear market, and our next report will focus on this.