• Crypto mixers have received funds from different channels like centralized exchanges, DeFi protocols, and illicit addresses.
• Russia’s largest darknet market Hydra accounted for 50 percent of all funds moving to mixers, coming from sanctioned entities.

Thefts in the crypto space has been on a steep rise with attackers exploiting network protocols and stealing millions of dollars of user funds. As a result, Bitcoin and crypto mixing activities have also spiked reaching their all-time this year in 2022.

On Thursday, July 14, blockchain analytics firm Chainlysis published a report explaining the state of increased use of crypto mixers. Some privacy advocates see crypto mixers as an important way to protect users’ identities. However, the Chainalysis report shows that the largest portion of crypto sent to the mixers comes from nation states and cybercriminals.

The surge specifically comes from an increased amount of crypto sent from centralized exchanges, DeFi protocols, and illicit addresses. As the Chainalysis report notes:

The increase in illicit cryptocurrency moving to mixers is more interesting though. Illicit addresses account for 23% of funds sent to mixers so far in 2022, up from 12% in 2021. On the chart below, we examine the types of criminal activity those illicit actors are associated with.

During the second quarter, there has been a huge volume of funds moving to mixers from addresses associated with sanctioned entities. North Korea has been recently active behind the hacks in the crypto market. As per our previous report, North Korea’s Lazarus Group was reportedly behind the $100-million exploit of the Harmony protocol. The notorious nation-state reportedly moved the stolen funds through the Tornado Cash mixer.

Lazarus Group and Russia’s Darknet Market Hydra

Earlier this year in 2022, the U.S. Department of Justice announced a crackdown on Russia’s largest darknet market Hydra seizing $25 million in Bitcoins (BTC). As per Chainalysis, Hydra accounted for a staggering 50 percent of all funds moving to mixers, coming from sanctioned entities.

Thus, drug sales weren’t the only reason behind the crackdown on Hydra. The U.S DoJ also noted that Hydra played a huge role in laundering money from other darkness. The Chainalysis report further adds:

Given the outsized role that Russia plays in cybercrime, and the connections some of these cybercriminal groups have to Russian intelligence services, an increase in funds moving from services like Hydra to mixers could be significant from a national security standpoint.

The next big players using crypto mixers are North Korea’s Lazarus Group and Blender.io. So far in 2022, the Lazarus Group has stolen a total of $1 billion worth of digital assets, mostly from DeFi protocols. On the other hand, Blender.io became the first-ever mixer sanctioned this year for laundering funds stolen by the Lazarus Group.

While the funds coming from Hyrda to crypto mixers dropped during the second quarter of 2022, those coming from the Lazarus Group have spiked significantly.

Crypto mixers are not completely illegal and also help in offering financial privacy. The U.S. Financial Crimes Enforcement Network (FinCEN) classifies mixers as money transmitters requiring registration under the Bank Secrecy Act (BSA).