Money laundering in the decentralized finance (DeFi) sector has grown by 263% in the first two quarters of 2022 according to analysis by CryptoMonday.
DeFi protocols have been conduits of up to 69% of funds associated with illicit activity. This is a significant rise from 19% in 2021.
CryptoMonday CEO Jonathan Merry says “While illicit activity within the entire crypto ecosystem has significantly decreased, it’s in the ascendency within the Defi space. The sector seems to be going through the same teething challenges that crypto faced a while back which explains that uptick in the last couple of years.”
This activity takes two major forms: stealing funds through exploits and misusing DeFi protocols to launder funds.
The increase in illicit activity is partly because DeFi protocols are wholly decentralised. This makes tracking transactions difficult as it allows for peer-to-peer (P2P) trading of cryptos. As well as this, unlike centralized exchanges (CEXs), DeFi platforms don’t have an emphasis on Know Your Customer (KYC) information making it attractive for criminals wanting to obscure exchanges.
It has also been found that North Korean hacking groups are behind most of the crypto heists in DeFi hacking. For example, the infamous Lazarus Group used various DeFi platforms to launder crypto worth $91mil they had stolen from one CEX in 2021. Currently, North Korean hackers have stolen over $840mil on DeFi sites. The US is concerned, as evidenced by its placement of sanctions on these groups, as there are concerns that money from these attacks are partially funding weapons of mass destruction.