Southeast Asia Crypto Assets Market Risk Analysis Report

In recent years, the use of Crypto Assets in Southeast Asia has significantly increased in scope and popularity. To gain a deeper understanding of the on-chain capital flow characteristics, potential financial risks, and their association with illegal activities in this region, we conducted a comprehensive analysis of 10,000 blockchain address samples from 2020 to the present. The research results indicate that the level of risk present in the circulation patterns of Crypto Assets in this region exceeds expectations.

Overview of the Southeast Asian Crypto Assets Market

As an emerging market, Southeast Asia presents unique characteristics in terms of economic structure, policy environment, and user behavior.

1. Rapid user growth: The high proportion of young people in the region, coupled with the widespread adoption of mobile internet, has led to a rapid increase in encryption users, estimated to have reached tens of millions.

2. Strong demand for cross-border payments: A large number of cross-border workers make Crypto Assets a convenient tool for cross-border payments.

3. Inconsistent regulatory environment: Different countries have significant differences in their regulatory policies regarding virtual currencies, and most regions have not established clear regulatory frameworks, resulting in compliance risks for the flow of funds.

Sample Analysis and Key Findings

1. Free Flow of Funds

Analysis shows that approximately 45.23% of funds are freely circulating on public chains through decentralized wallets, totaling $1.484 billion, indicating that decentralized trading methods have become the mainstream choice for users in Southeast Asia.

2. Association with illegal industries

Over $110 million in funds have flowed directly to addresses related to illegal industries, accounting for more than 12%. Further tracking revealed that through multiple transactions, the proportion of risk addresses associated with illegal industries rose to 16.82%. This means that millions of Southeast Asian Crypto Assets users may be at risk of having financial transactions that are directly or indirectly linked to illegal activities.

Analysis of Capital Flow and Risks in Illegal Industries

1. Classification of Illegal Industry Addresses

We will categorize addresses closely related to illegal activities into 3 major categories and 44 subcategories, mainly including:

• Mixing Service: Used for the anonymization of fund flows
• Underground banking: used for cross-border illegal fund transfers and money laundering
• Fraudulent platforms: Involving false investments, Ponzi schemes, etc.

These high-risk address types involve more than 240 specific illegal industry entities.

2. High-risk capital flow phenomenon

• Over 10 million USD in funds have directly flowed into addresses related to underground money laundering, with a cumulative trading frequency of thousands of times.
• Approximately $11 million in funds flowed to online gambling platforms.
• More than 22 million dollars in funds were funneled into a scam platform.

These funding flows reveal the complexity and concealment of illegal activities, as the anonymity and cross-border characteristics of Crypto Assets facilitate the transfer of illegal funds and money laundering activities.

Funding Inflow Situation of Restricted Platforms

1. Proportion of capital inflow to restricted platforms

Among the funds directly associated with illegal industries, approximately 53.49% flowed to restricted platforms, with the number of related transactions being twice that of those flowing to underground banks, and the total value exceeding 55 million USD, indicating that restricted platforms remain a major inflow destination for high-risk funds.

2. Case Study: A Mixing Coin Tool

As a commonly used mixing tool, a certain platform received over $54 million in funds during this study, accounting for 97.84% of all fund inflows into restricted platforms. However, since being placed on the restricted entity list in August 2022, its trading volume has significantly decreased, demonstrating the effective suppression of its fund inflows by the restrictions.

Macro Risk Analysis and Causes Discussion

1. Crypto Assets anonymity and high liquidity: The anonymous nature of Crypto Assets makes it difficult to trace illegal funds when they flow on the chain.

2. The absence of a regulatory framework in Southeast Asia: The regulatory measures for Crypto Assets in various countries are inadequate, increasing the risks of cross-border capital flow.

3. Socio-economic environment: Some countries have a low level of economic development and a large gap between the rich and the poor, which has become a breeding ground for illegal activities.

4. Technical supervision difficulty: Crypto Assets exchanges, wallet service providers, and decentralized platforms face regulatory constraints in terms of technology and architecture, making it challenging to effectively monitor transaction risks.

Conclusion and Recommendations

To effectively reduce the risk of illegal fund flows on the chain, it is advisable to take the following measures:

1. Strengthen regulatory mechanisms: Develop and implement comprehensive Crypto Assets regulatory policies, and combat illegal on-chain funding activities through international cooperation.

2. Enhance users' ability to identify risks: Increase the intensity of educational outreach to strengthen users' awareness of identifying and preventing funds related to illegal activities.

3. Promote technological innovation: Research and apply on-chain tracking and anti-money laundering technology to accurately identify and combat high-risk capital flows.

4. Establish a multi-party collaboration mechanism: Encourage relevant institutions to work together, strengthen information sharing and risk joint prevention, and improve on-chain security.

Southeast Asia, as a region with huge potential for the development of Crypto Assets, still faces challenges related to the risk of capital flow in the future. By strengthening regulation, enhancing user security awareness, and promoting technological innovation, we hope to gradually reduce illegal capital flows on the chain and promote the healthy development of the digital economy in Southeast Asia.