Southeast Asia Crypto Assets Market Risk Analysis

In recent years, with the global popularization of Crypto Assets, the number of crypto users in Southeast Asia has shown a rapid growth trend. To gain a deeper understanding of the on-chain capital flow characteristics, potential financial risks, and associations with illegal activities in this region, we conducted an in-depth analysis based on a sample of 10,000 blockchain addresses extracted from 2020 to the present. By tracking and labeling the flow paths of different types of risky 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 provides relevant recommendations.

Overview of the Southeast Asian 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: The high proportion of young population in Southeast Asia, along with the popularity of mobile internet, has led to a rapid increase in the number of Crypto Assets users in the region, estimated to be in the tens of millions.

2. There is a 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. Uneven 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. The situation of free flow of funds

In the analysis of 10,000 blockchain addresses, 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 1.484 billion USD, indicating that decentralized trading methods have become mainstream among users in Southeast Asia.

2. Association with illegal activities

Research has found that over $110 million in funds has flowed directly to addresses associated with illegal activities, accounting for more than 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 illegal activities, increasing the proportion of addresses associated with illegal activities to 16.82%. This means that among the tens of millions of crypto users in Southeast Asia, there may be millions of users who have direct or indirect risks of fund transactions related to illegal activities.

Analysis of Fund Flows and Risks of Illegal Activities

1. Typology of addresses for illegal activities

We will categorize addresses closely related to illegal activities into 3 major categories and 44 subcategories, with the high-risk categories primarily including:

• Mixing Service: Mainly used for anonymizing the flow of funds
• Underground money house: used for cross-border illegal fund allocation and money laundering
• Scam platforms: involving fake investments, Ponzi schemes, etc.

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

2. High-risk capital flow phenomenon

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

• Over 10 million USD has flowed directly into the addresses related to underground money houses, with the total number of transactions reaching into the thousands.
• Approximately $11 million in funds is clearly flowing to online gambling platforms.
• More than $22 million in funds was injected into fraudulent platforms.

This type of capital flow reveals the complexity and concealment of illegal activities, especially under the anonymity and cross-border characteristics of Crypto Assets, where criminals can frequently conduct illegal fund transfers and money laundering activities.

Capital Inflow Situation of Sanctioned Platforms

1. The proportion of capital inflow into sanctioned platforms

Among the funds directly associated with illegal activities, approximately 53.49% flowed to sanctioned platforms, with the number of related transactions even being twice that of those flowing to underground money houses, totaling over $55 million, indicating that sanctioned platforms remain a primary influx point for high-risk funds.

2. Case Study: A Mix Coin Tool

As a commonly used coin mixing tool, a certain platform received over $54 million in funding during this study, accounting for 97.84% of the total capital inflows to all sanctioned platforms. However, since the U.S. Treasury Department placed this platform on the list of sanctioned entities in August 2022, its trading volume has significantly decreased, demonstrating the effective suppressive effect of sanctions on its capital inflows.

Macro Risk Analysis and Discussion of Causes

1. Crypto Assets anonymity and high liquidity: The anonymity of Crypto Assets makes it difficult to trace illegal funds when 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 flow. Some regions still take a wait-and-see attitude towards Crypto Assets and have not adopted active regulatory measures, providing space for the flow of funds for illegal activities.

3. Socio-economic environment: Some Southeast Asian countries have a relatively low level of economic development and a large wealth gap, leading many criminals to use this area as a base, mainly attracting foreigners to participate.

4. Technical Regulatory Challenges: Crypto Assets exchanges, wallet service providers, and decentralized platforms often struggle 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 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 Recommendations

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

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

2. Enhance users' risk identification capabilities: Increase efforts in anti-fraud education for ordinary users, helping them understand on-chain risks and strengthen their ability to identify and prevent illegal funds.

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 cryptocurrency exchanges, wallet service providers, and related institutions in the Southeast Asia region 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 the development of Crypto Assets, still faces the challenge of capital flow risks in the future. We will continue to invest resources and technology, collaborating with all parties to build a safe, 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 blockchain and promote the healthy development of the digital economy in Southeast Asia.