A recent report by blockchain forensics firm Elliptic shows that cybercriminals have increasingly shifted towards using cross-chain bridges instead of crypto mixers to launder stolen cryptocurrency over the past year. This represents a significant change from the first half of 2022 when mixers were the preferred method for money laundering. The shift to cross-chain bridges can be attributed to the “crime displacement” effect, where criminals switch to a new method when their existing method becomes heavily policed. However, the adoption of cross-chain bridges has exceeded expectations.
Around June and July, nearly all of the stolen crypto was laundered through cross-chain bridges. This trend can be linked to the US Office of Foreign Asset Control’s decision to sanction Tornado Cash in August 2022, which caused many cybercriminals, including the North Korean-backed Lazarus Group, to move to the Avalanche bridge. The same bridge was used by the Lazarus Group in a recent $41 million exploit on Stake on September 4, 2023, according to blockchain security firm CertiK.
Although crypto mixers saw a brief resurgence between November 2022 and January 2023, following the shutdown of RenBridge after its financer, Alameda Research, collapsed due to FTX’s bankruptcy, criminals have once again shifted back to using cross-chain bridges, even more than before. Elliptic estimates that RenBridge facilitated $500 million in laundered funds throughout its operation.
The preference for cross-chain bridges can be attributed to the difficulty of tracking illicit activity across different chains in a scalable manner for blockchain forensic firms. Legacy blockchain analytics solutions lack the means to trace illicit blockchain activity across blockchains or tokens programmatically and at scale. Additionally, many of the stolen tokens can only be exchanged through cross-chain bridges, and most decentralized finance (DeFi) services that facilitate these exchanges do not require identity verification.
According to Elliptic, an estimated $4 billion worth of illicit or high-risk cryptocurrencies has been laundered through cross-chain bridges since 2020.