The landscape of cryptocurrency money laundering is shifting rapidly, according to a new Chainalysis report that highlights a significant change in how illicit actors move funds across the digital asset ecosystem. Instead of relying on well-known centralized exchanges, a growing share of money laundering activity now flows through informal, often Chinese-language networks that operate outside traditional platforms.
This shift marks a major turning point in the ongoing battle between law enforcement, regulators, and the underground economy that seeks to exploit the pseudonymous nature of blockchain transactions.
The Decline of Centralized Exchanges in Illicit Flows
Centralized cryptocurrency exchanges once stood as the primary gateway for criminals to launder illicit profits. These platforms, which allow users to trade crypto for fiat currency or other tokens, were attractive because of their liquidity and ease of converting digital assets into spendable cash.
However, the new Chainalysis report finds that this trend is declining. The volume of illicit funds flowing into centralized exchanges has dropped sharply as networks offering alternative services have emerged and grown exponentially. One of the key reasons behind this change, experts say, is that centralized exchanges are now much better at detecting and freezing suspicious funds, making them less appealing for criminals seeking to avoid law enforcement scrutiny.
The enhanced compliance measures by centralized platforms stem from regulatory pressure worldwide. Governments and financial authorities have imposed strict KYC (Know Your Customer) and AML (Anti-Money Laundering) requirements in recent years, forcing exchanges to bolster their monitoring systems and customer verification procedures.
This regulatory tightening combined with advanced blockchain analytics tools has made it harder for launderers to move stolen or illicit crypto without being detected.
Rise of Chinese-Language Money Laundering Networks
As traditional exchanges became more difficult to exploit, money launderers turned to alternative ecosystems – particularly Chinese-language underground networks that now play a central role in illicit crypto transfers.
Chainalysis estimates that these Chinese-language networks – often coordinated through platforms like Telegram – processed about 20% of all tracked illicit cryptocurrency flows in 2025, roughly $16.1 billion worth of digital assets.
These networks emerged around early 2020, but have grown dramatically over the past five years. According to Chainalysis data, inflows to these networks expanded at a pace 7,325 times faster than the growth of illicit flows into centralized exchanges – a stark indicator of how rapidly the underground ecosystem has evolved.
Instead of operating like formal exchanges, these networks rely on a patchwork of services:
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Money mules who move assets across multiple wallets to obfuscate origin.
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Over-the-counter (OTC) desks that quietly swap large volumes off-chain.
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Gambling platforms that mix and fragment funds into smaller amounts.
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Telegram-based laundering services that coordinate transactions manually with clients.
These services are notable not just for their scale, but also for their adaptability. When authorities crack down on one platform or service provider, another often springs up in its place, making enforcement a persistent challenge.
How Illicit Actors Exploit the New Ecosystem
The success of these alternative laundering networks relies on several factors:
1. Avoiding Detection
Unlike centralized exchanges, which have structured reporting and integrated AML systems, decentralized or informal networks operate with very little oversight. Transactions are often fragmented and routed through multiple wallets, making patterns harder to detect for automated systems.
2. Telegram as a Coordination Hub
Telegram and similar messaging platforms serve as marketplaces where service providers and clients connect. These channels allow launderers to advertise services, negotiate terms, and share instructions without relying on formal infrastructure.
3. Layering and Fragmentation
Launderers often break large sums into thousands of small transactions routed through different addresses and services. This practice – known as “layering” – makes forensic investigation significantly more complex.
4. Global Reach and Resilience
These networks involve active wallets spanning multiple regions and jurisdictions. Even when enforcement actions target operators in one region, participants often migrate or shift operations to other locales.
Implications for Law Enforcement and Regulation
The growth of underground laundering networks poses serious challenges for regulators and law enforcement agencies. Traditional AML strategies – which focus heavily on centralized financial institutions and exchanges – now need to contend with far more opaque mechanisms that defy typical compliance frameworks.
Law enforcement agencies increasingly rely on blockchain analytics firms, such as Chainalysis, to trace illicit flows and identify suspicious patterns across the public ledger. These tools can uncover relationships between wallets and flag transactions that match known laundering signatures.
However, as these informal networks innovate and diversify, investigators must also adapt. Blockchain intelligence is only effective when combined with legal cooperation, cross-border information sharing, and advanced analytical techniques.
Continued Growth of Crypto Crime Signals Larger Issue
The broader context of this trend reveals a worrying expansion of crypto-enabled crime. According to Reuters, on-chain money laundering activity surged to more than $82 billion in 2025, a dramatic increase from just $10 billion in 2020.
This explosive growth demonstrates that while centralized exchanges may be receiving fewer illicit funds, the total amount of money being laundered through crypto continues to rise – driven in part by more sophisticated networks and growing adoption of digital assets worldwide.
The surge in laundering activity also coincides with other areas of crypto crime, including hacks, scams, and fraud — highlighting how multiple vectors of criminal exploitation are converging in the blockchain space.
What Comes Next?
As the crypto ecosystem evolves, so too does the cat-and-mouse game between illicit actors and defenders of financial integrity. The shift away from centralized exchanges signals not just a tactical adjustment by money launderers, but a broader adaptation to regulation and enforcement.
Regulators, exchanges, and blockchain analytics firms must work collaboratively to develop tools and policies geared toward fighting evolving threats. This includes enhanced real-time monitoring, greater international cooperation, and efforts to understand and disrupt informal laundering networks at their core.
Only by staying ahead of these trends can the crypto industry hope to balance innovation with security and protect users from becoming unwitting participants in financial crime.
