Data-driven methods for analyzing illegal payment flows in cross-ledger DeFi ecosystems


Recently, illegal payment flows are increasingly being obscured by Decentralized Finance (DeFi) services. These services represent a new financial paradigm based on crypto assets and offer novel financial services such as lending, investing, or exchanging crypto assets without the involvement of regulated institutions such as crypto exchanges. These include decentralized crypto asset exchanges (DEXs), stablecoins (such as Tether), and non-fungible assets (NFTs). The use of these complex services further complicates the already difficult traceability of payment flows, challenges existing analysis tools, and presents unresolved challenges to authorities.

The aim of the DeFiTrace project is to develop new algorithmic solutions for the automated analysis of illegal payment flows in ledger-crossing DeFi ecosystems. The resulting algorithmic methods and tools should enable a more efficient and effective tracking of incriminated funds through complex, ledger-crossing decentralized financial constructs, as well as support empirical enforcement of regulatory measures. The project is accompanied by addressing legal and regulatory questions in the context of current regulatory developments (MiCA and DAC8) and the establishment of inter-agency training and continuing education standards in the field of crypto assets.

The expected project results include: (i) a systematic analysis of the regulatory framework and a clear legal and regulatory framework for the use of the desired investigation tools; (ii) new, largely automatable forensic methods for analyzing payment flows using ledger-crossing DeFi services; (iii) the integration and systematic validation of these methods into open-source forensic tools (such as GraphSense); and (iv) new training content on Decentralized Finance, which will be taught in the form of two training courses during the project and subsequently integrated into the respective continuing education programs of the stakeholders.

The innovation of the project lies in the empirical approach to answering legal and regulatory questions, the data-based approach to forensic investigations of complex, ledger-crossing DeFi financial constructs, and the creation of previously non-existent, inter-agency training content and continuing education standards.

The immediate target group of the DeFiTrace project are experts in the respective departments of the directly involved stakeholders (BMI, BMF, BMJ) and associated partners (FMA, OeNB, ZCB). They will benefit from the knowledge gained and can use the methods and tools developed.Projektorganisation


01.10.2023 – 
Bernhard Haslhofer, faculty member at the Complexity Science Hub © Anja Böck

Bernhard Haslhofer

Funded by

Project Partners

AIT Austrian Institute of Technology
Federal Ministry of Finance
Federal Ministry of the Interior
Federal Ministry of Justice
Iknaio Cryptoassets Analytics GmbH
University of Innsbruck
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