Criminals transacted nearly $35 million through DeFi in 2020

According to blockchain analytic firm Chainalysis, there was a dip in DeFi and crypto-related financial crimes last year

Chainalysis reported that crimes in the DeFi sector accounted for less than 0.5% of the total DEX transaction volume. However, the firm’s chief analyst Jacob Illum warned that the crime rate on decentralised exchanges would likely surge this year.

An estimated total of $144 billion was moved through DEXs last year. Of this sum, about $34 million involved some sort of crime as per Chainalysis’ estimates. While this figure resonates as very high, it is only a small fraction (roughly 0.02%) of the estimated DEX transactions volume.

The outlook is slightly different in the crypto space. According to a Chainalysis’ Crypto Crime Report published last week, there was limited criminal activity around cryptocurrencies in 2020. Transactions involving criminal actors represented 0.34% of the global crypto transaction volume.

In the report’s excerpt, the analytic firm summarised, “Criminal activity represented 2.1% of all cryptocurrency transaction volume [in 2019] or roughly $21.4 billion worth of transfers. In 2020, the criminal share of all cryptocurrency activity fell to just 0.34%, or $10.0 billion in transaction volume. One reason the percentage of criminal activity fell is because overall economic activity nearly tripled between 2019 and 2020.”

Illum shared his perspective on the sector’s current and future state regarding financial crimes with The Block. He predicted that the number of financial crimes in the DeFi space was going to increase this year.

The chief analyst explained that cybercriminals had identified a ‘loophole’ in DeFi smart contracts that can easily be exploited to facilitate crime. The lack of human interaction and oversight in smart contract technology paves the way for criminals to launder money.

“The question that remains is whether the most popular platforms will be those where administrators retain enough control to prevent criminal transactions as we saw in the KuCoin hack.”

He also pointed out that dark markets were gradually decentralising, making it hard to track transactions. Illum specifically cited Televend, saying, “Televend receives commissions on each sale, but never actually touches the funds, so there’s no central entity for law enforcement to track through blockchain analysis — the transactions blend in much more easily.”