Southeast Asia On-chain Capital Flow and Risk Analysis Report
This report not only reveals the risks of cryptocurrency usage in Southeast Asia but also explores the reasons behind this phenomenon from a macro perspective and offers relevant suggestions.Author: Beosin
With the global popularity of cryptocurrency and the rapid growth of crypto users in Southeast Asia, the on-chain flow of funds in the region has become increasingly frequent and complex. To gain deeper insights into the characteristics of fund flows, potential financial risks, and connections with illegal industries in Southeast Asia, Beosin conducted this in-depth analysis based on a sample of 10,000 blockchain addresses extracted since 2020 (such as Southeast Asian personal wallets/Southeast Asian exchange users). By tracking and labeling the flow paths of different types of risk funds, we found that the risk levels involved in the circulation patterns of crypto assets exceeded expectations. This report not only reveals the risks associated with cryptocurrency usage in Southeast Asia but also explores the underlying reasons for this phenomenon from a macro perspective and offers relevant recommendations.
Overview of the Southeast Asian Cryptocurrency Market
In recent years, the acceptance and popularity of cryptocurrency in Southeast Asia have significantly increased.
As an emerging market, Southeast Asia has unique characteristics in terms of economic structure, policy environment, and user behavior, particularly in the following aspects:
Rapid user growth: With a high proportion of young people and the widespread adoption of mobile internet, the number of crypto users in the region has grown rapidly. It is estimated that there are tens of millions of crypto users in the area.
Strong demand for cross-border payments: The large number of cross-border laborers in Southeast Asia has led to the widespread use of cryptocurrency as a convenient means for cross-border payments.
Varied regulatory environments: The regulatory policies regarding virtual currencies differ significantly among Southeast Asian countries. Some countries support the legalization of cryptocurrency, but most regions have yet to establish clear regulatory frameworks, resulting in certain compliance risks in fund flows.
Sample Analysis and Key Findings
Chart: Fund Flow Diagram
Chart: Distribution of Addresses Flowing to Web3 Wallets
- Free flow of funds
Among the 10,000 blockchain addresses analyzed, approximately 45.23% of the funds flowed freely on public chains through decentralized wallets, demonstrating high liquidity and decentralization characteristics. The total amount of freely flowing funds reached $1.484 billion, indicating that decentralized trading methods have become mainstream among Southeast Asian users.
- Connection with black and gray industries
Among these addresses, over $110 million of funds directly flowed to addresses related to black and gray industries, accounting for more than 12%. Further tracking of the fund flows from the remaining addresses revealed that through secondary or multiple transactions, some addresses also established indirect connections with black and gray industries, raising the proportion of addresses associated with these industries to 16.82%. This suggests that among tens of millions of crypto users in Southeast Asia, there may be millions of users who have indirect or direct financial interactions with black and gray industries.
Chart: Connection with Black and Gray Markets
Fund Flow and Risk Analysis of Black and Gray Industries
- Categorization of black and gray industry addresses
Beosin categorized addresses closely related to black and gray industries into three major categories and 44 subcategories using risk labels. The high-risk categories mainly include:
● Mixing services: Primarily used for anonymizing fund flows
● Underground banks: Used for cross-border illegal fund dispatch and money laundering
● Fraud platforms: Involving false investments, Ponzi schemes, and other scams
These high-risk address types involve over 240 specific entities in the black and gray industries.
- High-risk fund flow phenomena
Research findings indicate that certain specific categories of fund flows are particularly significant:
● Over $10 million of funds directly flowed into addresses related to underground banks, with transaction frequencies accumulating to thousands.
● Approximately $11 million of funds clearly flowed to online gambling platforms.
● Over $22 million of funds were directed to fraud platforms.
Such fund flows reveal the complexity and concealment of black and gray industry activities, especially under the anonymity and cross-border characteristics of cryptocurrency, which allow criminals to frequently conduct illegal fund transfers and money laundering activities.
Chart: Funds Flowing to the Black Market
Fund Inflows to Sanctioned Platforms
- Proportion of fund inflows to sanctioned platforms
Among the funds directly associated with black and gray industries, approximately 53.49% flowed to sanctioned platforms, with the number of related transactions being twice that of those flowing to underground banks, totaling over $55 million. This indicates that sanctioned platforms remain a major inflow destination for high-risk funds.
- Case Study: Tornado Cash
As a commonly used mixing tool, Tornado Cash received over $54 million in funds during this study, accounting for 97.84% of all fund inflows to sanctioned platforms. However, since the U.S. Treasury Department listed Tornado Cash as a sanctioned entity in August 2022, its transaction volume has significantly declined, demonstrating the effective suppression of fund inflows due to sanctions.
Chart: Fund Trends and Proportions Flowing to Tornado Cash
Macro Risk Analysis and Cause Exploration
Anonymity and high liquidity of cryptocurrency: The anonymity of cryptocurrency makes it difficult to trace illegal funds when they flow on-chain. Even if technical means are used to label risk addresses, funds can still obscure their flow through mixing and other techniques, facilitating money laundering activities.
Lack of regulatory systems in Southeast Asia: The regulatory measures for cryptocurrency in Southeast Asian countries are still inadequate, leading to increased risks in cross-border fund flows. Some regions remain cautious about cryptocurrency and have not adopted proactive regulatory measures, providing space for the flow of black and gray industry funds.
Socioeconomic environment: The economic development levels in some Southeast Asian countries are low, with significant wealth disparities, leading many scammers and online gambling operators to establish bases here, primarily attracting foreign participants.
Technical difficulties in regulation: Cryptocurrency exchanges, wallet service providers, and decentralized platforms often struggle to effectively monitor and investigate the risks behind transactions due to technical and architectural limitations. Decentralized platforms, in particular, lack direct control over transaction data, making it difficult to promptly identify malicious activities or money laundering risks. Although some centralized platforms attempt to enhance monitoring through KYC and AML measures, cross-chain transactions and anonymity technologies still complicate the tracking of fund flows, increasing security risks.
Conclusion and Recommendations
The analysis of on-chain fund flows in Southeast Asia indicates a high level of security risk associated with cryptocurrency usage in the region. To effectively reduce the risks of illegal fund flows on-chain, Beosin recommends the following measures:
Strengthen regulatory mechanisms: Governments should formulate and implement comprehensive cryptocurrency regulatory policies, combatting illegal on-chain fund activities through international cooperation and establishing clear regulatory frameworks for virtual currencies tailored to different national conditions.
Enhance users' risk identification capabilities: Increase anti-fraud education for ordinary users to help them understand on-chain risks and improve their ability to identify and prevent funds related to black and gray industries.
Promote technological innovation: Actively develop and apply on-chain tracking and anti-money laundering technologies, using big data analysis, artificial intelligence, and other technical means to accurately identify and combat high-risk fund flows.
Establish multi-party collaboration mechanisms: Encourage cryptocurrency exchanges, wallet service providers, and relevant institutions in Southeast Asia to collaborate, strengthen information sharing and risk prevention, and improve on-chain security.
As one of the regions with the greatest potential for cryptocurrency development, Southeast Asia still faces challenges related to fund flow risks in the future. Beosin will continue to invest resources and technology, collaborating with various sectors to build a safe, transparent, and compliant cryptocurrency ecosystem. By strengthening regulation, raising user security awareness, and promoting technological innovation, we hope to gradually reduce illegal fund flows on-chain and promote the healthy development of the digital economy in Southeast Asia.
