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

**Authors:** Arianna Trozze, Toby Davies, Bennett Kleinberg  
**arXiv:** [2303.00810](https://arxiv.org/abs/2303.00810)  
**Date:** 2023-03-01  
**Summary page:** https://www.summarizepaper.com/en/paper/2303.00810v1/

## Key points

- Decentralized finance (DeFi) ecosystem experiences an increase in fraud, resulting in billions of dollars lost to DeFi scams every year.
- A team of researchers used open-source investigative tools to investigate potential frauds involving Ethereum tokens extracted from the blockchain and analyze how proceeds from these scams were laundered.
- The analysis enabled them to identify a set of tokens meriting further investigation and uncover transaction-based evidence of several rug pull and pump-and-dump schemes while identifying their perpetrators' money laundering tactics and cash-out methods.
- Rug pulls were less sophisticated than anticipated, with rudimentary money laundering techniques employed by the perpetrators.
- Many funds ended up at centralized exchanges, indicating a lack of sophistication in the laundering process.
- Open-source investigative tools can extract transaction-based evidence that could be used in court to prosecute DeFi frauds.
- Future research could analyze patterns of behavior among Ethereum addresses participating in the purchase of DeFi tokens exhibiting similar behavior to those analyzed in this study.
- Exploring ways to automate more of the investigation process, such as automatically applying heuristics identified during the money laundering investigation phase, is suggested.
- Investigating on-chain data using open-source tools can provide valuable insights into fraudulent activities within DeFi ecosystems.
- With continued research efforts focused on refining these investigative techniques, it may be possible to reduce losses due to DeFi scams significantly.

## Summary

The decentralized finance (DeFi) ecosystem has been experiencing an increase in fraud, resulting in billions of dollars lost to DeFi scams every year. To address this issue, a team of researchers used open-source investigative tools to investigate potential frauds involving Ethereum tokens extracted from the blockchain and analyze how proceeds from these scams were laundered. The analysis enabled them to identify a set of tokens meriting further investigation and uncover transaction-based evidence of several rug pull and pump-and-dump schemes while identifying their perpetrators' money laundering tactics and cash-out methods. The study found that the rug pulls were less sophisticated than anticipated, with rudimentary money laundering techniques employed by the perpetrators. Many funds ended up at centralized exchanges, indicating a lack of sophistication in the laundering process. The research demonstrates how open-source investigative tools can extract transaction-based evidence that could be used in court to prosecute DeFi frauds. The authors note that future research could analyze patterns of behavior among Ethereum addresses participating in the purchase of DeFi tokens exhibiting similar behavior to those analyzed in this study. They suggest exploring ways to automate more of the investigation process, such as automatically applying heuristics identified during the money laundering investigation phase. While limitations exist regarding token extraction processes and running full Ethereum nodes, this study highlights how investigating on-chain data using open-source tools can provide valuable insights into fraudulent activities within DeFi ecosystems. With continued research efforts focused on refining these investigative techniques, it may be possible to reduce losses due to DeFi scams significantly.