On June 24, BlockSec released a detailed report examining the growing misuse of instant exchange services for illegal purposes. The report, based on their paper accepted by ACM SIGMETRICS 2025, focuses on how these services are being used to move funds linked to scams and other illicit activities. The study analyzed 432 crypto addresses flagged for malicious activity. These addresses received funds via instant exchanges, highlighting major concerns for compliance teams. BlockSec also introduced a new tracing method aimed at helping investigators follow the flow of suspicious funds across blockchains.
How Instant Exchanges Facilitate Fast, Anonymous Crypto Swaps
Instant exchange sites enable users to exchange cryptocurrencies between different blockchains in near real-time. The sites don’t ask for accounts to be created or checks to be run on one’s identity, making them user-friendly for intermittent traders. That ease, however, also makes them targets for individuals who want to obscure where their money is coming from. The lack of robust identity verification processes is concerning to the crypto community, particularly as this service continues to gain popularity. Their speed and anonymity make them susceptible to being used in illegal money-making schemes.
BlockSec’s research outlines how instant exchanges operate through four core stages. Users start by submitting swap requests off-chain, then send funds to a unique wallet address. The service then swaps the assets internally or through third-party sources. Finally, the swapped funds are sent to the destination address, often grouped with others in shared hot wallets. Because parts of the process happen off-chain, tracking these transactions becomes more difficult. The mixing of multiple users’ funds further obscures the path of assets, reducing transparency for investigators.
Lack of KYC Enables Large-Scale Crypto Money Laundering
A central issue is the lack of Know Your Customer (KYC) protocols on many instant exchange services. According to BlockSec, over $12 million in illegal funds were processed through these platforms. The report identifies 432 addresses linked to scams and phishing attacks. One key case was the BitKeep hack, where attackers used instant exchanges to move over $2 million. By using these services, the attackers broke the link between the stolen funds and their final destination. This disconnection limits the ability of law enforcement to trace the assets effectively.
A New Method to Trace Suspicious Crypto Transactions
To combat these tracing challenges, BlockSec developed a new heuristic-based tracking method. This method evaluates blockchain activity to match deposits and withdrawals across time and value ranges. It considers timing patterns, transaction size, historical prices, and reuse of wallet addresses. The method works in three stages: identifying related transactions, converting value using past prices, and matching deposit-withdrawal pairs. By using this approach, the analysis reveals patterns that are often missed in traditional reviews of blockchain activity.
The researchers applied this tracing method to data from two platforms—FixedFloat and SideShift. Results showed an accuracy rate of over 80%, suggesting that despite the design of instant exchange services, many transactions remain traceable. The report also showed that a large portion of illicit funds stayed on Ethereum or moved through TRON. In some cases, funds were later sent to centralized exchanges, meaning instant exchanges were just one step in larger crypto money laundering chains.
Balancing Innovation and Regulation in the Crypto Industry
This study highlights wider challenges facing the crypto industry. While instant exchange services offer speed and simplicity, they also come with risks that cannot be ignored. The tracing method by BlockSec gives investigators new tools to respond to illegal activity, but also opens a debate about regulatory boundaries. Excessive rules could limit innovation, while weak oversight creates opportunities for abuse. A balanced approach—improving transparency while supporting innovation—could help the industry grow responsibly without becoming a tool for crypto money laundering.
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