Southeast Asia Crypto Assets Market Risk Analysis: Capital Flow and Security Risks

In recent years, with the proliferation of Crypto Assets globally, the number of crypto users in Southeast Asia has shown a rapid growth trend. To gain a deeper understanding of the flow characteristics of on-chain funds in the region, potential financial risks, and associations with illegal activities, 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 different types of risk fund flow paths, the research found that the level of risk involved in the circulation patterns of Crypto Assets exceeded expectations. This report not only reveals the usage risks of Crypto Assets in Southeast Asia but also explores the reasons behind this phenomenon from a macro perspective and offers 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 improved. As an emerging market, this region has unique characteristics in terms of economic structure, policy environment, and user behavior.

1. Rapid user growth: The proportion of young population in Southeast Asia is relatively high, coupled with the popularity of mobile internet, resulting in a rapid increase in the number of crypto users in the region. It is estimated that there are tens of millions of crypto users in this region.

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

3. Inconsistent regulatory environment: Southeast Asian countries have varying regulatory policies towards virtual currencies. Some countries support the legalization of Crypto Assets, but most regions have yet to establish 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 analyzed blockchain addresses, approximately 45.23% of the funds flow 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 the black and gray industries

More than $110 million in funds have directly flowed to addresses related to the black and gray industry, 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 industry, causing the proportion of risk addresses related to the black and gray industry to rise to 16.82%. This means that among the tens of millions of Southeast Asian Crypto Assets users, there could be millions of users who have indirect or direct financial interaction risks with the black and gray industry.

Analysis of Fund Flow and Risks in the Black and Gray Industries

1. The typification of black and gray industry addresses

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 anonymizing the flow of funds
• Underground banks: used for cross-border illegal fund transfers and money laundering
• Scam platforms: Involving false investments, Ponzi schemes, killing foreign plates, killing pig plates, etc.

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

2. High-risk capital flow phenomenon

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

• Over 10 million dollars in funds have directly flowed into addresses related to underground money houses, with a cumulative transaction frequency reaching thousands of times.
• Approximately $11 million in funds clearly flowed to online gambling platforms.
• Over $22 million in funds have been funneled into scam platforms.

Such capital flows reveal the complexity and concealment of black and gray industry activities, especially under the anonymity and cross-border characteristics of Crypto Assets, which allow criminals to frequently conduct illegal fund transfers and money laundering activities.

Funding Inflows of Sanctioned Platforms

1. The proportion of funds inflow to sanctioned platforms

Approximately 53.49% of the funds directly associated with the black and gray industries flowed to sanctioned platforms, and the number of related transactions was even twice that of those flowing to underground money houses, with a total value exceeding $55 million, indicating that sanctioned platforms remain a major influx point for high-risk funds.

2. Case Study: A Mixed Coin Tool

As a commonly used mixing tool, the platform received over $54 million in funding during this study, accounting for 97.84% of the total inflow of funds into all sanctioned platforms. However, since being listed as a sanctioned entity in August 2022, its trading volume has significantly decreased, demonstrating the effective suppression of its fund inflow due to 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 when they flow on the chain. Even if there are technical means to mark risky addresses, funds can still obscure their flow through techniques like coin mixing, thereby facilitating money laundering activities.

2. Lack of regulatory frameworks in Southeast Asia: The regulatory measures for Crypto Assets in various Southeast Asian countries are still inadequate, leading to an increased risk of cross-border capital flows. Some regions remain cautious about Crypto Assets and have not taken proactive regulatory measures, providing space for the flow of funds in the black and gray industries.

3. Socio-economic environment: Some Southeast Asian countries have a lower level of economic development and a significant wealth gap, leading to many scammers and online gambling operations using this region as a base to primarily attract foreign participants.

4. Technical Regulatory Challenges: Crypto asset 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 timely identify malicious activities or risks such as money laundering. Although some centralized platforms attempt to strengthen 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

Analysis of on-chain capital flow 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 risks of illegal on-chain capital flow, we recommend implementing the following measures:

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

2. Enhance users' ability to identify risks: Increase anti-fraud education for ordinary users, helping them understand on-chain risks and enhancing their ability to recognize and prevent funds from the 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 cryptocurrency exchanges, wallet service providers, and relevant institutions in the Southeast Asia region to work together, strengthen information sharing and risk joint prevention, and improve on-chain security levels.

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. By strengthening regulation, raising user awareness of security, and promoting innovation in technology, we hope to gradually reduce illegal capital flows on the chain and promote the healthy development of the digital economy in Southeast Asia.