Crypto Criminals Bagged $1.9 Billion in 2020

CipherTrace has published its most recent Cryptocurrency Crime and Anti-Money Laundering Report, outlining the 2020’s biggest trends in digital crime.

Ponzi Schemes

A Chinese Ponzi scam in 2020, like the year before, held the top position in crypto crime volume.

The infamous Plus token scammers from 2019 have gotten a taste of free money using Ponzi scheme, and CipherTrace’s research finds that some of them came back for the hunt in 2020 with WoToken. 

The Chinese gang netted $1.1 billion—58% of the total amount stolen—last year. The year before, Plus Token scammers defrauded Chinese investors of $2.9 billion. 

DeFi Exit Scams

DeFi rug pulls came second in value abstracted, as the markets saw improvements with exchange hacks. The report has also singled out a U.S. based exchange which is favorite among criminals.

The summer of 2020 brought a tremendous inflow of money into decentralized applications (DeFi). The total value locked (TVL) in DeFi grew from less than a billion dollars in June to $10 billion by October, primarily due to the yield farming craze. The TVL value doubled by year-end. 

At one point, the crypto market’s attention was entirely focused towards DeFi and the hype brought bad actors into the mix. According to CipherTrace’s report, DeFi exit scams accounted for half the number of scams and around 25% of the total amount at $129 million. 

A few prominent ones were Harvest Finance ($24 million), Pickle Finance ($19.8 million), bZx exchange hack, WarpFinance among others. 

The research firm noted that the regulators are increasing their oversight towards DeFi applications. Quoting an SEC official the report cites that soon DeFi apps could come under “securities laws, potentially banking and lending laws—definitely AML/CTF laws.”

The EU, on the other hand, has proposed a Markets in Crypto-Assets (MiCA) law to ban DEXes altogether. 

Money Laundering on Exchanges

CipherTrace found that criminally associated wallets—owned by dark markets, ransomware actors, hackers, and fraudsters—moved $3.5 billion Bitcoin in 2020. 

These criminals need a fiat on-ramp to launder the money. CipherTrace found that a U.S. based exchange, which remains unnamed, was the center of several fraudulent transactions. 

The exchange received $3.5 million BTC and sent $36.5 million BTC directly to criminally associated addresses. Whereas, the total for U.S. exchanges was $8.4 million received and $41.2 sent, respectively. 

Notably, exchange hacks, which dominated in the years before, took a back seat last year. KuCoin exchange was hacked for $281 million, but the exchange managed to recover 85% of the stolen amount. 

Undoubtedly, things have improved on the cryptocurrency front with strict rules for ICOs, and crypto exchange protections. However, the industry has presented new challenges in DeFi scams which along with darknet transactions will be the primary focus of regulators. 

Disclosure: The author held Bitcoin at the time of publication.