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

Résumé : 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) triage Ethereum tokens extracted from the Ethereum blockchain for further investigation, (2) investigate potential frauds involving these tokens using on-chain data and token smart contract analysis, and (3) investigate the ways proceeds from these scams were subsequently laundered. The analysis enabled us to (1) identify a set of tokens meriting further investigation, (2) uncover transaction-based evidence of several rug pull and pump-and-dump schemes, and (3) 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.