NFTs are increasingly targeted by criminals, says Report

Since that year, over $8 million in proceeds from illegal activities have been laundered through platforms that facilitate the creation, purchase and sale of NFTs, the report said. Another $328 million passing through the platforms came from so-called obfuscation services, such as mixers that allow users to exchange cryptocurrencies with relative anonymity, and may also include ill-gotten gains, the report said.

Tornado Cash, for example, a mixer platform that was sanctioned by the US Treasury Department earlier this month, was the source of around $137 million in cryptocurrencies processed by NFT marketplaces, according to the report. Before it was blacklisted, Tornado Cash was also the “laundering tool of choice” for 52% of NFT fraud proceeds, the report said.

Platforms using NFTs face an increasing threat of attacks from sanctioned entities and state-backed groups, the report said. In particular, it pointed to the heist of $540 million in March by North Korea’s Lazarus Group from the online game Axie Infinity’s Ronin Bridge, a platform that allows players to turn their holdings of the digital asset Ethereum into video game tokens, according to the report.

The report recommended proactive risk management to deter criminal actors and highlighted the need to screen for sanctioned entities and prevent them from using NFT platforms. In recent years, NFTs have become popular in art, music, games, sports and entertainment.

Regulators continue to examine the risks of cryptocurrency, including NFTs, and how to regulate the market. In February, US financial authorities noted that the rapid growth of NFTs could present new arenas for money laundering.

Write to Mengqi Sun at [email protected]