The Illicit Crypto Economy

Key Trends from 2023

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Executive Summary

Scams and frauds accounted for approximately a third of all crypto crime in 2023, according to TRM Labs data. Despite the overall proportion of total illicit funds in the crypto ecosystem shrinking by 9% year-on-year, criminals still handled over USD 34 billion worth of cryptocurrencies.

While some crime categories, such as darknet drugs sales, remained buoyant, the volumes of hacked and sanctions-exposed funds posted significant declines; fentanyl sales posted lower growth than in 2022. Those downward trends were accompanied by increased pressure from governments and law enforcement bodies: for example, the US alone tripled the number of crypto crime-linked entities and individuals subject to sanctions.

Here are the eight key trends that shaped that the illicit crypto economy in 2023, according to TRM’s blockchain intelligence team:

1. Total Illicit Volumes Down

Across the entire ecosystem, illicit fund volumes dropped by just under a third, from USD 49.5 billion in 2022 to USD 34.8 billion in 2023 - surpassing the 22% decline in total cryptocurrency volumes during that period.

The share of illicit funds as a proportion of all crypto value also fell, to 0.63% in 2023 from 0.70% in 2022. Both figures are higher than existing industry estimates, reflecting that TRM Labs captures more illicit volume, especially linked to sanctions and investment fraud, and captures illicit activity across a greater number of blockchains such as Polygon and BNB Smart Chain (BSC); unverified crowdsourced reports of crypto crime were not included in the data.

2. Sanctioned Volumes Plummeted

The total value of funds sent to sanctioned addresses and entities fell to USD 16.2
billion in 2023 from USD 25.4 billion in 2022.

Sanctions designations rose three-fold, from 11 designation events in 2022 to 33 in 2023. Among the targets were twelve ransomware groups, six high risk exchanges and a cryptocurrency mixing service.

3. Hacks Proceeds Halved

Hack proceeds fell by over 50% to USD 1.8 billion from USD 3.7 billion in 2022. Actors linked to North Korea, responsible for nearly a third of all funds stolen in crypto attacks, made off with 30% less than they did in 2022.

4. Scams and Fraud Declined

Scams and fraud volumes - the total payments into addresses that TRM has connected to fraud or scams - dropped to USD 12.5 billion from USD 13.9 billion in 2022.

5. Fentanyl Growth Rates Dropped 150%

The growth rate of sales by online crypto-denominated vendors specializing in fentanyl and its precursor materials dropped by 150% in volume over 2023 from 2022. Despite the slowdown in growth, however, overall vendor sales volumes still increased by over 97% year-on-year, from USD 16 million to USD 33 million.

6. Illicit Drug Sales Remained Robust

Sales of illicit drugs on darknet marketplaces (DNMs) grew to USD 1.6 billion, from USD 1.3 billion recorded in 2022. Individual vendor shops operating outside DNMs rose to USD 310 million from USD 271 million in 2022.

7. Almost Half of All Illicit Crypto Volume Occurred on the TRON Blockchain

TRON (TRX) hosted 45% of all illicit volume, up from 41% in 2022, followed by Ethereum at 24% and Bitcoin with 18%.

Tether (USDT) was the stablecoin with the largest amount of illicit volume, at USD 19.3 billion. Approximately 1.63% of Tether (USDT) volume was linked by TRM to illicit activity, compared to 0.05% of USDC.

8. Tether Dominated Terrorist Financing

Hamas and other groups announced moratoriums on crypto donations over 2023,
likely in response to greater international law enforcement scrutiny. This became
particularly acute in the wake of the Hamas attacks on Israel in October 2023, which spurred leading exchanges and cryptocurrency companies to freeze assets linked to Hamas and its sympathizers.

Yet among those terror financing campaigns that continued to accept cryptocurrency, the number of unique TRON addresses that received Tether (USDT) rose by 125%.

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