Blockchain analytics firm Chainalysis has found that illicit crypto transactions hit a record of $14 billion in 2021.
Despite this, the yearly trend indicates that crime is becoming an ever-smaller part of the crypto ecosystem.
The report also found that a significant part of the illicit activity involved DeFi protocols.
Share this article
A significant rise in cryptocurrency-related crime accompanied the rise of decentralized finance in 2021. While crypto crime rates hit record highs in absolute numbers, illicit crypto transactions marked record lows in relative terms, representing just 0.15% of the total transaction volume in 2021.
Chainalysis: Crypto Crime Hit Record Highs in 2021
Data suggests that crypto is still the Wild West of finance.
According to the latest crypto crime report published by renowned blockchain intelligence firm Chainalysis, crime involving cryptocurrencies hit an all-time high of $14 billion in 2021.
Crypto transactions linked to illicit activity jumped 79% from the year before, while the total crypto transaction volume grew by 550%. Interestingly, illicit activity represented just 0.15% of the total crypto transaction volume in 2021, marking a 126% decline from 2020 and a record low.
According to Chainalysis, the yearly trend suggests that crime is becoming an ever-smaller part of the cryptocurrency ecosystem. However, with the amount of illicit activity sitting at roughly $14 billion, the chances of the industry seeing an increased regulatory and enforcement activity this year are growing.
Notably, the decentralized finance sector played a central role in crypto crime in 2021, with scams and stolen funds growing by 82% and 516% respectively from the previous year. Most of that activity was related to DeFi protocols on smart contract networks like Ethereum and Polygon.
Scamming revenue totaled $7.8 billion, over 2.8 billion of which reportedly came from “rug pulls”—a type of scam where crypto founders abruptly abandon their projects, pull the liquidity away from centralized or decentralized exchanges, and run away with the funds. Rug pulls are particularly common in DeFi as it’s relatively simple to withdraw funds from a liquidity pool. Plus, many developers stay anonymous, making it difficult to track those responsible for malicious activity. 90% of the total value lost due to rug pulls in 2021 resulted from an incident concerning the Turkish centralized exchange Thodex, where the founder took off with over $2 billion in user funds. Six people were subsequently jailed.
On the other hand, cryptocurrency theft totaled roughly $3.2 billion, with DeFi incidents accounting for the majority of the losses. 72% of the $3.2 billion total was stolen from decentralized finance platforms. In December alone, Crypto Briefing reported on five DeFi hacks amounting to roughly $271 million in stolen funds. Chainalysis further reported that DeFi protocols saw the most growth by far in usage for money laundering, marking a 1,964% increase compared to the year before.
According to Chainalysis, as of early 2022, illicit addresses held over $10 billion worth of cryptocurrency, the vast majority of which was associated with theft. The growing absolute volume of crypto-related activity has caught the attention of regulators and enforcement agencies worldwide over the last year. In response, last year, the U.S. Department of Justice created a special crypto task force, dubbed the National Cryptocurrency Enforcement Team, with a mandate to “tackle complex investigations and prosecutions of criminal misuses of cryptocurrency.”
Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.
Share this article
The information on or accessed through this website is obtained from independent sources we believe to be accurate and reliable, but Decentral Media, Inc. makes no representation or warranty as to the timeliness, completeness, or accuracy of any information on or accessed through this website. Decentral Media, Inc. is not an investment advisor. We do not give personalized investment advice or other financial advice. The information on this website is subject to change without notice. Some or all of the information on this website may become outdated, or it may be or become incomplete or inaccurate. We may, but are not obligated to, update any outdated, incomplete, or inaccurate information.
You should never make an investment decision on an ICO, IEO, or other investment based on the information on this website, and you should never interpret or otherwise rely on any of the information on this website as investment advice. We strongly recommend that you consult a licensed investment advisor or other qualified financial professional if you are seeking investment advice on an ICO, IEO, or other investment. We do not accept compensation in any form for analyzing or reporting on any ICO, IEO, cryptocurrency, currency, tokenized sales, securities, or commodities.
See full terms and conditions.
NFT Natives Are Dominating the Market: Chainalysis Report
It’s almost impossible to make outsized gains on newly-minted NFT purchases without being whitelisted, Chainalysis said in their latest NFT market report. You’re Either In, or You’re Out According to...
$120M Lost in BadgerDAO DeFi Hack
BadgerDAO, a DeFi protocol for earning yield with tokenized Bitcoin on Ethereum, has fallen victim to an attack. The hacker reportedly added a malicious script to the protocol’s frontend website,...
What Is The Crypto Volatility Index?
The Crypto Volatility Index (CVI) is a decentralized solution used as a benchmark to track the volatility from cryptocurrency option prices and the overall crypto market.
Turkish Crypto Exchange Thodex Charged With $2 Billion Fraud
After initial reports of a “Turkish Mt. Gox” event, Thodex is now officially under criminal investigation for fraudulent activity totaling more than $2 billion. Thodex CEO Denies Allegations According to...