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

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.