Tether and Tron continue to dominate criminal financing as overall illicit funding decreases, report finds

Yesterday felt like a nostalgic return to the pre-Bitcoin ETF era, with law enforcement actions and hacks dominating the headlines. While the Department of Justice’s indictment against KuCoin, which allegedly processed $9 billion in suspicious transactions, may have been the biggest story, the rapid fall and miraculous recovery of a blockchain-based game called Munchery felt like more of a blast from the past (no pun intended).

Crypto denizens have long warned about the scammy nature of the layer-2 blockchain Blast, but yesterday’s hack represented its first major incident after a rogue developer and/or North Korean cybercriminals exploited its elaborate gameplay of earning “schnibbles” to feed your “munchables” and earn “blast points.” Laugh all you want, but money still poured into the application, with the hacker swiping $63 million before the funds were recovered.

The immediate consequence is yet another blow to crypto’s attempt to position itself as a serious industry. Like the derogatory political memecoins that have bubbled into the mainstream over the past few months, blockchain advocates will find it more difficult to pitch their industry to traditional finance as schnibbles are being stolen to the tune of $60 million.

The more existential threat is crypto’s inability to institute effective security measures, especially with illicit money funding rogue state nuclear programs and fentanyl production. As Ryan Selkis, one of the industry’s loudest boosters, posted on X last night, “If $62mm more of hacked funds goes to [North Korea] (or is alleged to go to NK), it’s night night for crypto in the U.S.”

A new report published this morning by the blockchain analytics firm TRM Labs seems to quell the concern, at least slightly. According to the report, illicit fund volumes dropped by a third last year, from $49.5 billion in 2022 to around $35 billion. And even though crypto prices and volumes plunged during the same period, the decrease in illicit transactions exceeded the decrease in overall volumes by 10%, meaning other factors were at play.

With governmental agencies like the DOJ and Treasury Department taking a closer look at the crypto industry, figures such as Treasury Deputy Secretary Wally Adeyemo have urged the sector to address the pernicious problem of illicit financing, from hacks and scams to the drug trade to state-linked cyber groups. The newest figures from TRM Labs imply that the efforts are starting to work, although the firm mostly credits governmental actions like more aggressive law enforcement agencies and sanctions with the drop. Even so, the crypto industry has played a key role in the ramped-up focus on enforcement actions, such as providing blockchain analytics or coordinating with agencies to seize accounts.

The report is not entirely rosy. Building on past conclusions, TRM Labs found that the stablecoin Tether continues to dominate terrorist financing, especially on the blockchain Tron, with the number of unique Tron addresses that received Tether linked to terror financing campaigns rising by 125% last year. Overall, TRM Labs found that Tron hosted 45% of all illicit volume in 2023, up from 41% in 2022, with Ethereum at 24% and Bitcoin at just 18%.

Furthermore, while other categories of illicit financing in crypto decreased, drug sales on darknet marketplaces rose to $1.6 billion in 2023, up from $1.3 billion in 2022. The volume of drug sales that used Tron more than quadrupled, according to TRM Labs, which said that cybercriminals prefer the blockchain because of its relatively low gas fees, minimal price fluctuations, and an outdated perception that it is more difficult to trace.

While law enforcement officials used to fear the threat of privacy coins like Monero, it would seem that Tron became the new frontier for illicit activity as Bitcoin lost its sheen as a criminal venue. That already seems to be changing for the blockchain, with leading companies like Binance and Circle rethinking their relationship with the Justin Sun-founded project. Tether, however, is still going strong. Nearly $55 billion—or more than half of Tether’s overall market cap—is issued on Tron.

Leo Schwartz
[email protected]
@leomschwartz

DECENTRALIZED NEWS

The Department of Justice charged KuCoin, one of the largest crypto exchanges by volume, with violating anti-money laundering and banking laws and facilitating billions of dollars in suspicious transactions. (Fortune)

Three blockchain-based artificial intelligence companies are in talks to merge their crypto tokens and develop a decentralized AI platform. (Bloomberg)

A confusing press release from a penny stock company intending to acquire nearly 25,000 Bitcoins turned out to be a "classic pump and dump," at least according to its former CEO. (Protos)

Short-sellers are betting that the current rally in crypto prices won't last, with the amount pledged against crypto stocks increasing to nearly $11 billion. (Yahoo Finance)

The decentralized cloud computing firm Hive raised a $13 million Series A led by Standard Chartered's venture arm. (Fortune)

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