Blockchain analytics firm Chainalysis have recently published the results of research showing that there has been a huge increase in the use of decentralised finance (DeFi) protocols to launder money over the last year. DeFi is an emerging financial technology based on secure distributed ledgers similar to those used by cryptocurrencies.

In 2021, there was a 30% increase in overall cyber money laundering activity compared to 2020, with cybercriminals laundering a total of US$8.6 billion in cryptocurrencies. Over this period, cybercriminals have increasingly turned to DeFi protocols as a means by which to launder cryptocurrency: DeFi protocols received 17% of all cryptocurrency sent from illicit addresses in 2021, compared to just 2% in 2020.

DeFi is one of a number of crypto-related means of money laundering that has seen its use increase.  Chainalysis found that cybercriminals sent more crypto to mining pools, high-risk exchanges and mixers in 2021 than they had previously, although centralised exchanges still remain the most commonly used method for laundering funds, receiving nearly half of the estimated US$8.6 billion laundered last year.

According to Chainalysis, cryptocurrency obtained through theft is more likely to be laundered through DeFi protocols. This is put down to the substantial technological demands of obtaining crypto through theft and the consequent likelihood of sophisticated groups being behind the offence. Scammers on the other hand, are more likely to use centralised exchanges.

The key takeaway is that cybercriminals are finding and using more sophisticated ways to covertly launder their money. DeFi protocols, which are still in their developmental stage, are the latest platforms to be exploited. This behaviour is starting to draw the attention of regulators, but how regulatory mechanisms would work without traditional financial intermediaries remains to be seen.