Southeast Asia Crypto Assets Market Risk Analysis Report

In recent years, with the global popularization of Crypto Assets and the rapid growth of users in Southeast Asia, the on-chain capital flow in this region has become increasingly frequent and complex. To gain a deeper understanding of the characteristics of on-chain capital flows in Southeast Asia, potential financial risks, and connections to illegal industries, we conducted an in-depth analysis based on a sample of 10,000 blockchain addresses extracted since 2020 (such as Southeast Asian personal wallets/exchange users, etc.). By tracking and marking the flow paths of different types of risk capital, 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 the use of Crypto Assets in Southeast Asia but also explores the underlying reasons for this phenomenon from a macro perspective and provides relevant recommendations.

Overview of the Southeast Asia Crypto Assets Market

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

1. Rapid user growth: Southeast Asia has a high proportion of young people, and the widespread use of mobile internet has led to a rapid increase in the number of Crypto Assets users in the region. It is estimated that there are already 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. Regulatory environment varies: The regulatory policies for virtual currencies in Southeast Asian countries are inconsistent. Some countries support the legalization of Crypto Assets, but most regions have not yet established a clear regulatory framework, leading to certain compliance risks in the flow of funds.

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 circulating funds reaches as high as $1.484 billion, indicating that decentralized trading methods have become mainstream among users in Southeast Asia.

2. Association with the black and gray industries

Among these addresses, over $110 million in funds flowed directly to addresses related to the black and gray industries, accounting for over 12%. Further tracking of the fund flows of the remaining addresses revealed that through secondary or multiple transactions, some addresses also had indirect connections to the black and gray industries, raising the proportion of addresses associated with the black and gray industries to 16.82%. This means that among tens of millions of crypto users in Southeast Asia, there may be millions of users who have indirect or direct financial transaction risks with the black and gray industries.

Capital Flow and Risk Analysis of the Black and Gray Industry

1. The typification of addresses in the black and gray industry

Through risk labels, we will categorize addresses closely related to the black and gray industry into 3 major categories and 44 subcategories, with the high-risk categories mainly including:

• Mixing service: mainly used for the anonymization of fund flows.
• Underground money house: used for cross-border illegal fund dispatch and money laundering
• Fraudulent platforms: involve false investments, Ponzi schemes, killing foreign plates, killing pig plates, etc.

Among these high-risk address types, there are more than 240 specific entities involved in the black and gray industries.

2. High-risk capital flow phenomenon

The research results show that certain specific categories of fund flows are particularly significant:

• Over 10 million USD has flowed directly into addresses related to underground money houses, with a cumulative transaction frequency reaching thousands of times.
• Approximately 11 million USD in funds is clearly flowing to online gambling platforms.
• Over 22 million dollars in funds were diverted to fraudulent platforms.

This type of capital flow reveals the complexity and concealment of black and gray industry activities, especially under the anonymity and cross-border characteristics of Crypto Assets, which allows criminals to frequently engage in illegal fund transfers and money laundering activities.

Funding Inflow Situation of Sanctioned Platforms

1. The proportion of fund inflow to sanctioned platforms

Among the funds directly associated with the black and gray industries, approximately 53.49% flowed to sanctioned platforms, with the number of related transactions even twice that of those flowing to underground money houses, totaling over 55 million USD, indicating that sanctioned platforms remain the primary inflow destination for high-risk funds.

2. Case Study: A Mixing Coin Tool

As a commonly used coin mixing tool, a certain platform received over 54 million USD in funds during this study, accounting for 97.84% of the capital inflow to all sanctioned platforms. However, since the U.S. Treasury Department listed this platform as a sanctioned entity in August 2022, its trading volume has significantly decreased, demonstrating the effective suppression of its capital inflow by the sanctions.

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 chain. Even if there are technical means to mark risky addresses, funds can still obscure their flow through techniques such as coin mixing, thus facilitating money laundering activities.

2. The lack of regulatory systems in Southeast Asia: The regulatory measures for Crypto Assets in Southeast Asian countries are still not完善, leading to an increased risk of cross-border capital flows. Some regions still take a wait-and-see attitude towards Crypto Assets and have not adopted proactive regulatory measures, providing space for the flow of funds in the black and gray industries.

3. Socio-Economic Environment: The economic development level in some Southeast Asian countries is relatively low, and the wealth gap is significant, leading many scammers and online gambling operators to use this area as a base, primarily to attract foreigners to participate.

4. Technical Regulatory Challenges: Crypto Assets exchanges, wallet service providers, and decentralized platforms often find it difficult 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 hard to promptly identify malicious activities or risks such as money laundering. 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

An analysis of on-chain fund flows in the Southeast Asia region indicates that there are significant security risks associated with the use of crypto assets in the area. To effectively reduce the risk of illegal fund flows on-chain, we recommend the following measures:

1. Strengthen Regulatory Mechanisms: Governments around the world should formulate and implement comprehensive Crypto Assets regulatory policies, combat illegal on-chain financial activities through international cooperation, and introduce clear virtual currency regulatory frameworks tailored to the specific conditions of different countries.

2. Enhance users' risk identification capabilities: Increase anti-fraud education for ordinary users, helping them understand on-chain risks and improving their ability to recognize and prevent funds from black and gray industries.

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

4. Establish a multi-party collaboration mechanism: Encourage crypto assets exchanges, wallet service providers, and related institutions in Southeast Asia to work together, strengthen information sharing and risk joint prevention, and improve on-chain security.

Southeast Asia, as one of the regions with the greatest potential for Crypto Assets development, still faces challenges regarding the risks of capital flow in the future. We will continue to invest resources and technology, collaborating with all sectors, to build a secure, transparent, and compliant Crypto Assets ecosystem. By enhancing regulation, improving user security awareness, and promoting innovation in technological means, we hope to gradually reduce illegal capital flow on the chain and promote the healthy development of the digital economy in Southeast Asia.