Southeast Asia Crypto Assets Market Analysis: Capital Flow and Risk Assessment

In recent years, the acceptance and popularity of Crypto Assets in Southeast Asia have significantly increased. To gain a deeper understanding of the flow characteristics of on-chain funds in the region, potential financial risks, and connections with illegal industries, we conducted an in-depth analysis based on a sample of 10,000 blockchain addresses from 2020 to the present. These samples include personal wallets and exchange users in Southeast Asia. By tracking and marking the flow paths of different types of risk funds, we found that the level of risk involved in the circulation patterns of Crypto Assets exceeds expectations.

Characteristics of the Southeast Asian Crypto Assets Market

As an emerging market, Southeast Asia exhibits unique characteristics in terms of economic structure, policy environment, and user behavior:

1. Rapid user growth: The region has a high proportion of young people, and with the widespread adoption of mobile internet, the number of Crypto Assets users is growing rapidly, with an estimated tens of millions of users.

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

3. Regulatory environment varies: The regulatory policies for virtual currencies differ from country to country. Some countries support the legalization of Crypto Assets, but most regions have yet to establish a clear regulatory framework, resulting in 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 circulating 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

Over $110 million in funds has flowed directly to addresses related to the black and gray industries, accounting for more than 12%. Further tracking of the funds flowing to the remaining addresses revealed that through secondary or multiple transactions, some addresses also had indirect connections with the black and gray industries, raising the proportion of risk addresses associated with the black and gray industries to 16.82%. This means that among tens of millions of Southeast Asian Crypto Assets users, there may be millions of users who have indirect or direct financial transaction risks with the black and gray industries.

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

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

We will categorize addresses closely related to the black and gray industries 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 banks: used for cross-border illegal fund transfers and money laundering
• Fraudulent 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 the black and gray industries.

2. High-risk capital flow phenomenon

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

• Over 10 million dollars in funds flowed directly into addresses related to underground money houses, with transaction frequency accumulating to thousands of times.
• Approximately $11 million in funds clearly flowed to online gambling platforms.
• Over 22 million dollars in funds were siphoned into a scam platform.

These funding 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. Proportion of capital inflow to sanctioned platforms

Approximately 53.49% of the funds directly associated with the black and gray industries 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 USD, indicating that sanctioned platforms remain the main inflow of high-risk funds.

2. Case Study: A Mixing Coin Tool

As a commonly used coin mixing tool, a certain platform received over $54 million in funds during this study, accounting for 97.84% of the total capital inflow to all sanctioned platforms. However, since the U.S. Department of the Treasury placed the platform on the list of sanctioned entities in August 2022, its trading volume has significantly decreased, demonstrating the effective suppression of sanctions on its capital 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 when they flow 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, thereby facilitating money laundering activities.

2. The lack of regulatory frameworks in Southeast Asia: The regulatory measures for Crypto Assets in Southeast Asian countries are still incomplete, leading to an increased risk of cross-border capital flows. Some regions remain watchful regarding Crypto Assets and have not adopted proactive regulatory measures, providing room 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 operations to use this place as a base, mainly attracting foreign participation.

4. Technical regulatory difficulties: Crypto assets exchanges, wallet service providers, and decentralized platforms often find it challenging to effectively monitor and investigate the risks behind transactions due to technological and architectural limitations. Decentralized platforms especially lack direct control over transaction data, making it difficult to promptly identify malicious behavior 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

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

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

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

3. Promote technological innovation: Actively develop 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 related institutions in the Southeast Asian region to work together, strengthen information sharing and risk prevention, and improve on-chain security.

Southeast Asia, as one of the regions with the greatest potential for Crypto Assets development, still faces challenges of capital flow risks 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 strengthening regulation, raising user security awareness, 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.