With the global adoption of cryptocurrencies and the rapid growth of crypto users in Southeast Asia, on-chain fund flows in the region have become increasingly frequent and complex. To gain deeper insights into the flow characteristics of on-chain funds, potential financial risks, and connections to illicit industries in Southeast Asia, Beosin conducted an in-depth analysis based on a sample of 10,000 blockchain addresses (e.g., Southeast Asian personal wallets/exchange users) collected since 2020. By tracking and marking different risk fund flow paths, it was found that the level of risk involved in the circulation patterns of crypto assets exceeds expectations. This report not only reveals the risks of cryptocurrency usage in Southeast Asia but also explores the underlying reasons behind these phenomena from a macro perspective and proposes relevant recommendations.

Contents

• [ ] Overview of the Southeast Asian Cryptocurrency Market
• [ ] Sample Analysis and Key Findings
• [ ] Analysis of Fund Flows and Risks in Illicit Industries
• [ ] Fund Inflows to Sanctioned Platforms
• [ ] Macro-Level Risk Analysis and Root Causes
• [ ] Conclusions and Recommendations

Overview of the Southeast Asian Cryptocurrency Market

In recent years, cryptocurrency adoption and popularity have grown significantly in Southeast Asia.

As an emerging market, Southeast Asia has unique characteristics in terms of its economic structure, policy environment, and user behavior, with the following points standing out:

1. Rapid User Growth:

The region’s high proportion of young people, combined with the widespread adoption of mobile internet, has led to a rapid increase in the number of cryptocurrency users. It is estimated that tens of millions of crypto users exist in the region.

1. Strong Demand for Cross-Border Payments:

With a large number of cross-border workers, cryptocurrency offers a convenient cross-border payment solution, leading to widespread use in the region.

1. Uneven Regulatory Environment:

Southeast Asian countries vary in their regulatory policies on virtual currencies. Some countries support the legalization of cryptocurrencies, while most regions have yet to establish clear regulatory frameworks, resulting in compliance risks in fund flows.

Sample Analysis and Key Findings

Charts: Fund Flow Diagram

Chart: Distribution of Addresses Flowing to Web3 Wallets

1. Free Fund Circulation

Of the 10,000 blockchain addresses analyzed, approximately 45.23% of funds flowed freely on public chains via decentralized wallets, showing high liquidity and decentralization. The total amount of freely circulating funds reached $1.484 billion, indicating that decentralized trading methods have become mainstream among Southeast Asian users.

1. Association with Illicit Industries

Among these addresses, over $110 million directly flowed to addresses associated with illicit industries, accounting for more than 12%. Further tracking of the remaining addresses revealed that through secondary or multiple transactions, some addresses also formed indirect links to illicit industries, raising the proportion of risk-related addresses to 16.82%. This implies that among tens of millions of Southeast Asian cryptocurrency users, millions may have direct or indirect fund interactions with illicit industries.

Charts: Associations with Illicit Markets

Analysis of Fund Flows and Risks in Illicit Industries

1. Categorization of Illicit Industry Addresses

Beosin categorized addresses closely associated with illicit industries into 3 main categories and 44 subcategories using risk labels. The main high-risk categories include:

• Mixing Services: Primarily used to anonymize fund flows.
• Underground Banks: Used for cross-border illegal fund allocation and money laundering.
• Fraud Platforms: Involving false investments, Ponzi schemes, and scams like “pig-butchering” and others.

These high-risk address types involve more than 240 specific entities linked to illicit industries.

1. High-Risk Fund Flow Phenomena

The research results reveal particularly notable flows of certain fund types:

• Over $10 million directly flowed into addresses related to underground banks, with the number of transactions exceeding several thousand.
• Approximately $11 million flowed to online gambling platforms.
• More than $22 million was routed to fraud platforms.

Such fund flows reveal the complexity and hidden nature of illicit industry activities. The anonymity and cross-border features of cryptocurrencies enable frequent illegal fund transfers and money laundering activities.

Chart: Funds Flowing to Black Markets

Fund Inflows to Sanctioned Platforms

1. Proportion of Funds Flowing into Sanctioned Platforms

Among funds directly associated with illicit industries, about 53.49% flowed to sanctioned platforms. The number of related transactions was double that of funds flowing to underground banks, with a total value exceeding $55 million. This indicates that sanctioned platforms remain the primary destination for high-risk funds.

1. Case Study: Tornado Cash

As a commonly used mixing tool, Tornado Cash received over $54 million in this study, accounting for 97.84% of all funds flowing into sanctioned platforms. However, since being listed as a sanctioned entity by the U.S. Department of Treasury in August 2022, Tornado Cash’s transaction volume has significantly declined, demonstrating the effectiveness of sanctions in curbing fund inflows.

Chart: Fund Trends and Proportions Flowing into Tornado Cash

Macro-Level Risk Analysis and Root Causes

1. Anonymity and High Liquidity of Cryptocurrencies

The anonymity of cryptocurrencies makes it difficult to trace illicit fund flows on the blockchain. Even with technical methods to label risk addresses, funds can still obscure their flow through mixing tools, thereby facilitating money laundering activities.

1. Lack of Regulatory Framework in Southeast Asia

The regulatory measures for cryptocurrencies are still underdeveloped in Southeast Asian countries, increasing the risks of cross-border fund flows. Some regions remain cautious about cryptocurrencies and have yet to adopt proactive regulatory approaches, creating room for illicit industry fund flows.

1. Socioeconomic Environment

In certain Southeast Asian countries, lower economic development levels and significant wealth disparities make these regions a base for scammers and online gambling operations, which primarily target foreign participants.

1. Technical Challenges in Regulation

Due to technical and structural limitations, cryptocurrency exchanges, wallet service providers, and decentralized platforms often struggle to effectively monitor and investigate transaction risks. Decentralized platforms, in particular, lack direct control over transaction data, making it difficult to promptly identify malicious activities or money laundering risks. While some centralized platforms attempt to enhance monitoring through KYC and AML measures, cross-chain transactions and anonymity technologies complicate fund tracking, increasing security risks.

Conclusions and Recommendations

The analysis of on-chain fund flows in Southeast Asia indicates significant security risks associated with cryptocurrency use in the region. To effectively mitigate the risks of illicit on-chain fund flows, Beosin offers the following recommendations:

1. Strengthen Regulatory Mechanisms: Governments should develop and implement comprehensive cryptocurrency regulatory policies. Cross-border cooperation is essential to combat illicit on-chain fund activities. Tailored virtual currency regulatory frameworks should be introduced based on the specific conditions of each country.

2. Enhance User Risk Awareness: Increase anti-fraud education for regular users to help them understand on-chain risks, improve their ability to identify illicit funds linked to black and gray industries, and raise their awareness of preventive measures.

3. Promote Technological Innovation: Actively research and apply on-chain tracking and anti-money laundering technologies. Use big data analysis, artificial intelligence, and other technical means to precisely identify and combat high-risk fund flows.

4. Establish Collaborative Mechanisms: Encourage cryptocurrency exchanges, wallet service providers, and related institutions in Southeast Asia to cooperate, strengthen information sharing, and build joint risk prevention systems to enhance on-chain security.

As one of the most promising regions for cryptocurrency development, Southeast Asia will continue to face challenges related to fund flow risks. Beosin remains committed to investing in resources and technology and collaborating with various stakeholders to create a safe, transparent, and compliant cryptocurrency ecosystem. By reinforcing regulations, raising user awareness, and driving technological innovation, we can gradually reduce illicit on-chain fund flows and promote the healthy development of Southeast Asia’s digital economy.

We have provided a detailed analysis, available for download on our official website:

Download link:

https://www.beosin.com/resources/Southeast_Asia_On-Chain_Capital_Flow_and_Risk_Analysis_Report.pdf

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