Southeast Asia Crypto Assets Market Risk Analysis Report

In recent years, with the global proliferation of Crypto Assets and the rapid growth of users in Southeast Asia, on-chain capital flows in the region have become increasingly frequent and complex. To gain a deeper understanding of the flow characteristics of on-chain capital in Southeast Asia, potential financial risks, and associations with illegal activities, this study conducts an in-depth analysis based on a sample of 10,000 blockchain addresses extracted from 2020 to the present. By tracking and marking the flow paths of different types of risk capital, we found that the level of risk involved in the circulation patterns of Crypto Assets exceeded expectations. This report not only reveals the risks associated with the use of Crypto Assets in Southeast Asia but also explores the underlying reasons for this phenomenon at a macro level and offers relevant recommendations.

Overview of the Southeast Asia Crypto Assets Market

In recent years, the acceptance and popularity of Crypto Assets in the Southeast Asia region have significantly increased. As an emerging market, Southeast Asia has unique characteristics in terms of economic structure, policy environment, and user behavior:

1. Rapid User Growth: Southeast Asia has a high proportion of young people, coupled with the widespread adoption of mobile internet, which has led to a rapid increase in the number of Crypto Assets users in the region. It is estimated that there are tens of millions of Crypto Assets users in the region.

2. Strong demand for cross-border payments: The number of cross-border workers in Southeast Asia is large, and Crypto Assets provide a convenient means of cross-border payment, thus being widely used.

3. Inconsistent regulatory environment: The regulatory policies for virtual currencies vary across Southeast Asian countries. Some countries support the legalization of Crypto Assets, but most regions have yet to establish a clear regulatory framework, resulting in certain compliance risks for capital flows.

Sample Analysis and Key Findings

1. Free flow of funds

Among the 10,000 blockchain addresses analyzed, approximately 45.23% of the funds circulate freely on the public chain through decentralized wallets, demonstrating high liquidity and decentralized characteristics. The total amount of freely flowing funds reaches $1.484 billion, indicating that decentralized trading methods have become mainstream among users in Southeast Asia.

2. Association with illegal activities

Among these addresses, over $110 million in funds flowed directly to addresses related to illegal activities, 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 had indirect connections to illegal activities, raising the proportion of addresses associated with illegal activities to 16.82%. This means that among tens of millions of Southeast Asian crypto users, there may be millions of users who have direct or indirect financial transaction risks related to illegal activities.

Analysis of Illegal Activity Fund Flow and Risks

1. The Typology of Addresses for Illegal Activities

Through risk labels, we categorize addresses closely related to illegal activities into 3 major categories and 44 subcategories, with the main high-risk categories including:

• Coin Mixing Service: Primarily used for anonymizing the flow of funds
• Illegal fund transfer: used for cross-border illegal fund dispatch and money laundering
• Scam platforms: involve false investments, Ponzi schemes, etc.

Among these high-risk address types, there are over 240 specific entities involved in illegal activities.

2. High-risk capital flow phenomenon

The research results show that the flow of funds in certain specific categories is particularly significant:

• More than 10 million dollars in funds have flowed directly into addresses related to illegal fund transfers, with a cumulative transaction frequency reaching thousands of times.
• Approximately $11 million in funds clearly flowed to online gambling platforms.
• More than 22 million dollars in funds have been imported into the scam platform.

This type of fund flow reveals the complexity and concealment of illegal activities, especially under the anonymity and cross-border characteristics of Crypto Assets, allowing criminals to frequently carry out illegal fund transfers and money laundering activities.

Funding Inflows of Restricted Platforms

1. The proportion of fund inflows to restricted platforms

Approximately 53.49% of funds directly associated with illegal activities flowed into restricted platforms, with the number of related transactions even double that of those flowing towards illegal fund transfers, totaling over 55 million USD. This indicates that restricted platforms remain a major inflow point for high-risk funds.

2. Case Study: A Mixing Coin Tool

As a commonly used mixing tool, a certain platform received over 54 million USD in funding during this study, accounting for 97.84% of all funds flowing into restricted platforms. However, since being listed as a restricted entity in August 2022, its trading volume has significantly decreased, demonstrating the effective suppression effect of the restrictions on its fund inflow.

Macroeconomic Risk Analysis and Causes Discussion

1. Crypto Assets anonymity and high liquidity: The anonymity of Crypto Assets makes it difficult to trace illegal funds flowing on the blockchain. Even if there are technical means to mark risky addresses, funds can still conceal their flow through techniques such as coin mixing, thereby facilitating money laundering activities.

2. The lack of a regulatory framework in Southeast Asia: The regulatory measures for crypto assets in Southeast Asian countries are still inadequate, leading to an increased risk of cross-border fund flows. Some regions remain cautious towards crypto assets and have not adopted proactive regulatory measures, providing space for the flow of funds related to illegal activities.

3. Socioeconomic Environment: Some countries in Southeast Asia have a lower level of economic development and a significant wealth gap, which has led many criminals to use this place as a base, primarily attracting foreigners to participate.

4. Technical Regulatory Challenges: Crypto Assets exchanges, wallet service providers, and decentralized platforms often face difficulties in effectively monitoring and investigating 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 risks such as money laundering. While 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 Suggestions

Analysis of on-chain capital flow in the Southeast Asian region indicates that there are high security risks associated with the use of Crypto Assets in the area. To effectively reduce the risks of illegal on-chain capital flows, we recommend taking the following measures:

1. Strengthen regulatory mechanisms: Governments of various countries should formulate and implement comprehensive Crypto Assets regulatory policies, combat on-chain illegal fund activities through international cooperation, and issue clear virtual currency regulatory frameworks tailored to different national conditions.

2. Enhance users' risk identification capabilities: Strengthen anti-fraud education for ordinary users to help them understand on-chain risks and improve their ability to identify and prevent illicit activity funds.

3. Promote technological innovation: Actively research and apply on-chain tracking and anti-money laundering technologies, accurately identify and combat high-risk capital flows through big data analysis, artificial intelligence, and other technological means.

4. Establish a multi-party collaboration mechanism: Encourage cryptocurrency exchanges, wallet service providers, and relevant institutions in the Southeast Asian region to collaborate, strengthen information sharing and risk prevention, and improve on-chain security.

Southeast Asia, as one of the regions with the greatest potential for the development of Crypto Assets, still faces challenges related to capital flow risks in the future. We should continue to invest resources and technology, collaborate with all sectors, and work towards building a secure, transparent, and compliant Crypto Assets ecosystem. By strengthening regulation, raising user awareness of security, and promoting innovation in technological means, we hope to gradually reduce illegal capital flows on the chain and promote the healthy development of the digital economy in Southeast Asia.