Of Degens and Defrauders: Using Open-Source Investigative Tools to Investigate Decentralized Finance Frauds and Money Laundering

TL;DR

This paper demonstrates how open-source investigative tools can uncover DeFi scams, identify perpetrators, and analyze money laundering tactics using on-chain data, highlighting the potential for legal prosecution in decentralized finance fraud cases.

Contribution

The study applies open-source tools to analyze DeFi frauds and laundering, revealing transaction evidence and laundering methods, which is a novel approach in DeFi investigations.

Findings

Uncovered transaction evidence of rug pulls and pump-and-dump schemes

Identified rudimentary money laundering techniques and cash-out methods

Funds often ended at centralized exchanges

Abstract

Fraud across the decentralized finance (DeFi) ecosystem is growing, with victims losing billions to DeFi scams every year. However, there is a disconnect between the reported value of these scams and associated legal prosecutions. We use open-source investigative tools to (1) investigate potential frauds involving Ethereum tokens using on-chain data and token smart contract analysis, and (2) investigate the ways proceeds from these scams were subsequently laundered. The analysis enabled us to (1) uncover transaction-based evidence of several rug pull and pump-and-dump schemes, and (2) identify their perpetrators' money laundering tactics and cash-out methods. The rug pulls were less sophisticated than anticipated, money laundering techniques were also rudimentary and many funds ended up at centralized exchanges. This study demonstrates how open-source investigative tools can extract transaction-based evidence that could be used in a court of law to prosecute DeFi frauds. Additionally, we investigate how these funds are subsequently laundered.