Southeast Asia On-Chain Capital Flow and Risk Analysis Report
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Southeast Asia On-Chain Capital Flow and Risk Analysis Report
This report not only reveals the risks associated with cryptocurrency usage in Southeast Asia, but also explores the underlying causes of this phenomenon from a macro perspective, and puts forward relevant recommendations.
Navigating Web3 tides with focused insightsAuthor: Beosin
As cryptocurrencies gain global popularity and the number of crypto users in Southeast Asia rapidly increases, on-chain fund flows in the region have become more frequent and complex. To better understand the characteristics of these fund flows, potential financial risks, and their connections to illicit industries, Beosin conducted an in-depth analysis based on a sample of 10,000 blockchain addresses collected from 2020 to the present (such as individual wallets in Southeast Asia and exchange users in the region). By tracking and labeling different types of risky fund flow paths, we found that the level of risk involved in cryptocurrency circulation patterns exceeds expectations. This report not only reveals the usage risks of cryptocurrencies in Southeast Asia but also explores the underlying causes at a macro level and provides relevant recommendations.
Overview of the Southeast Asian Cryptocurrency Market
In recent years, acceptance and adoption of cryptocurrencies in Southeast Asia have significantly increased.
As an emerging market, Southeast Asia exhibits unique characteristics in economic structure, policy environment, and user behavior, with several key features standing out:
1. Rapid user growth: With a high proportion of young people and widespread mobile internet access, the number of cryptocurrency users in the region is growing rapidly. It is estimated that tens of millions of individuals in the region are already using cryptocurrencies.
2. Strong demand for cross-border payments: The large number of migrant workers across Southeast Asia has led to strong demand for efficient cross-border remittance solutions. Cryptocurrencies provide a convenient means for such transactions and are therefore widely adopted.
3. Divergent regulatory environments: Regulatory policies toward virtual assets vary significantly across Southeast Asian countries. While some nations support cryptocurrency legalization, most areas lack clear regulatory frameworks, creating compliance risks in fund flows.
Sample Analysis and Key Findings
Chart: Fund Flow Diagram
Chart: Distribution of Addresses Receiving Funds into Web3 Wallets
1. Free Fund Circulation
Among the 10,000 blockchain addresses analyzed, approximately 45.23% of funds circulated freely on public blockchains via decentralized wallets, demonstrating high liquidity and decentralization. The total volume of freely circulating funds reached as high as $1.484 billion, indicating that decentralized trading methods have become mainstream among users in Southeast Asia.
2. Links to Illicit Industries
Over $110 million in funds from these addresses flowed directly into addresses associated with illicit or gray-market activities, accounting for more than 12%. Further tracing of remaining address flows revealed indirect links through secondary or multiple transactions, increasing the proportion of addresses connected to illicit industries to 16.82%. This implies that among tens of millions of cryptocurrency users in Southeast Asia, potentially millions may be indirectly or directly exposed to financial risks tied to illicit activities.
Chart: Association with Black and Gray Markets
Fund Flows and Risk Analysis Related to Illicit Industries
1. Categorization of Illicit Industry Addresses
Beosin classified addresses closely linked to illicit industries into three major categories and 44 subcategories using risk tags. High-risk types include:
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Mixing services: primarily used to anonymize fund flows
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Underground banks: used for illegal cross-border fund transfers and money laundering
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Scam platforms: involving fake investments, Ponzi schemes, "killing foreign pigs" ("sha yang pan"), and "pig-butchering scams" ("sha zhu pan")
These high-risk address types involve over 240 specific illicit entities.
2. High-Risk Fund Flow Phenomena
The study shows particularly notable fund flows in certain categories:
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More than $10 million flowed directly into underground bank-related addresses, with transaction frequency totaling thousands of instances.
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About $11 million was clearly directed toward online gambling platforms.
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Over $22 million was channeled into scam platforms.
These fund flows highlight the complexity and concealment of illicit industry operations. Particularly under the anonymity and cross-border nature of cryptocurrencies, criminals can frequently conduct illegal fund transfers and money laundering activities.
Chart: Funds Flowing into Black Markets
Fund Inflows to Sanctioned Platforms
1. Proportion of Fund Inflows to Sanctioned Platforms
Of the funds directly linked to illicit industries, about 53.49% flowed into sanctioned platforms. The number of related transactions was even twice that of flows into underground banks, with a total value exceeding $55 million—indicating that sanctioned platforms remain primary destinations for high-risk funds.
2. Case Study: Tornado Cash
As a commonly used coin-mixing tool, Tornado Cash received over $54 million in funds during this study, accounting for 97.84% of all inflows to sanctioned platforms. However, since the U.S. Department of the Treasury added Tornado Cash to its sanctions list in August 2022, its transaction volume has notably declined, demonstrating the effectiveness of sanctions in curbing fund inflows.
Chart: Trend and Share of Funds 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 funds on-chain. Even when risk addresses are technically flagged, funds can still obscure their origins through mixing techniques, facilitating money laundering.
2. Lack of Regulatory Frameworks in Southeast Asia: Cryptocurrency regulations across Southeast Asian countries remain incomplete, increasing the risks of cross-border capital flows. Some regions maintain a wait-and-see approach without proactive oversight, providing space for illicit financial activities.
3. Socioeconomic Conditions: In certain Southeast Asian countries with lower economic development levels and significant wealth disparities, fraudsters and online gambling operators often establish bases here, primarily targeting foreigners.
4. Technical Challenges in Regulation: Due to technological and architectural limitations, cryptocurrency exchanges, wallet service providers, and decentralized platforms often struggle to effectively monitor and investigate transaction-related risks. Decentralized platforms especially lack direct control over transaction data, making it hard to promptly detect malicious behavior or money laundering. Although some centralized platforms attempt to strengthen monitoring through KYC and AML measures, cross-chain transactions and anonymity technologies continue to complicate fund flow tracking and increase security vulnerabilities.
Conclusion and Recommendations
Analysis of on-chain fund flows in Southeast Asia indicates high security risks in cryptocurrency usage within the region. To effectively reduce the risk of illegal on-chain fund flows, Beosin recommends the following measures:
1. Strengthen Regulatory Mechanisms: Governments should develop and implement comprehensive cryptocurrency regulations, enhance international cooperation to combat illegal on-chain activities, and establish clear virtual asset regulatory frameworks tailored to national contexts.
2. Enhance User Risk Awareness: Increase anti-fraud education for ordinary users to improve understanding of on-chain risks and strengthen their ability to identify and guard against illicit financial flows.
3. Promote Technological Innovation: Actively develop and deploy on-chain tracking and anti-money laundering technologies, leveraging big data analytics and artificial intelligence to accurately detect and disrupt high-risk fund flows.
4. Establish Multi-Party Collaboration Mechanisms: Encourage collaboration among cryptocurrency exchanges, wallet service providers, and related institutions in Southeast Asia to enhance information sharing and joint risk prevention, thereby improving overall 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 will continue investing resources and technology, collaborating with stakeholders to build a secure, transparent, and compliant cryptocurrency ecosystem. Through strengthened regulation, improved user awareness, and innovative technical tools, we aim to gradually reduce illegal on-chain fund flows and promote the healthy development of Southeast Asia's digital economy.
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