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Analysing Crypto Fund Flows Between Entities

February 12, 2024

Effective crypto source of funds analysis often requires scrutiny of transactions between two counterparties.  

We don’t mean between two crypto addresses; we mean between entities.  For example, trades between Binance and Coinbase, or trades between a hacked wallet and a  DeFi protocol.  It could also mean trades between a prospect you are seeking to onboard and the services they say they’ve interacted with.

The ability to see who your prospect has traded with and why enables not just the discovery of how wealth was accrued, but whether their wealth story adds up.  Being able to examine fund flows with their counterparties is critical in getting to grips with the overall narrative.  Often this means being able to answer questions like:  

  • Which Uniswap pools are they using and why?
  • Are they sending funds to exchanges they say they’ve used?
  • How frequent are the deposits to a staking protocol, and what have they earned from it?

You might also see things that don’t immediately make sense, prompting you to go back and verify the data with the prospect.  This isn’t uncommon.  Often its because a prospect forgot they traded with a service, or they didn’t think particular transactions were relevant.  But sometimes it could be an attempt to hide something… and that’s when you need to dig into the transfers to find out what’s really going on.

These are all valid focus points when assessing someone’s crypto activity.  Its critical to get comfortable with the story by validating their on-chain activity.  Onboarding crypto customers in this way will also open up other opportunities that previously were not there.

On-Chain Counterparty Analysis

Hoptrail’s platform allows its users to scrutinise transfers of funds between two parties, helping them to get to grips with the narrative, verify the fund flows, and check for additional concerns.  

Let’s take a look at how this works in practice, starting with a Bitcoin address (below).  The address lists Luno, Xapo, CEX.IO, and Cubits as its known direct sources of funds.  You can see the amount received and the value of that amount per source, plus the timeframes during which the address traded with those counterparties - all important information for source of funds verification.

But you can also see how many times the address has traded with its sources in the Tx Count column.  Clicking on any of those will bring up transaction details between the searched-for address and an entity, as we’ve done with Luno below.

Users can toggle by ‘Source’, ‘Destination’, or ‘All’ on this pop-up.  We’ve selected the latter which shows all deposits and withdrawals with Luno addresses.  

This table provides a sense of the flow of funds, and also allows users to isolate specific addresses or transactions to examine or flag.  What we can see is funds coming in from Luno, indicating the user may hold an account with that exchange.  

So next we might turn to destinations of funds to learn more about where BTC is going to.  As we know, one transfer was sent back to Luno, but funds have also gone to other services.

It might be that the user holds accounts with some or all of these services.  Obtaining data from the prospect on these services would be the next port of call to validate activity.

On / Off Ramping  

One of the critical points of this analysis is to confirm funds flowing into and out of the ecosystem.  Fiat investments and withdrawals are mostly done via exchanges (so-called ‘on-ramps’ or ‘off-ramps’).  Matching BTC deposits to exchanges that the prospect has highlighted as an ‘off-ramp’ may point to where funds have exited the ecosystem.  Bitstamp (above) might be an off-ramp in this case.

It is important to ensure that you have exchange statements from the prospect to verify this activity and tie it to the relevant on-chain data.  

Ethereum Token Flows

A good example of the flow of funds on Ethereum can be seen in the image below which shows trades between an unknown address and a liquidity pool on Curve, a popular DeFi protocol.  This pool specialises in stablecoins, allowing users to deposit and withdraw DAI, USDT, and USDC.  We can see how this address has used the pool over time to swap tokens.

Notable in the image above is the ‘Symbol’ column which denotes the token traded.  This data is available for any transaction on Ethereum, and provides users with a better understanding of how DeFi protocols and decentralised exchanges are being used.

All of these tables are automatically sorted in chronological order, making it far easier to see the order of transfers, including what assets were swapped and when.  

Hoptrail’s transaction count is unique in that sense, and has been specifically designed to cater to compliance and legal professionals seeking crypto onboarding support.  

Get in touch to find out more about Hoptrail’s platform and their source of funds work for financial institutions.  You can reach us at info@hoptrail.io.

Source of fundscryptoethereumbitcoinAML

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