Binance and Chainalysis Clash Over Illicit Crypto Activity Measurement Methods

In mid-November, Binance published an internal analysis claiming that illicit trading volume on the world's seven largest crypto exchanges is exceptionally low, ranging between 0.018% and 0.023% of total volume. The exchange argued that by isolating direct inflows from wallets formally labeled as illicit by regulators, it demonstrated minimal criminal exposure, with Binance having the lowest among major platforms.

Chainalysis quickly pushed back, stating that while the mathematical calculation was accurate, the methodology was flawed. The firm emphasized that criminals typically route stolen or ransomware funds through chains of intermediate wallets before reaching exchanges, and Binance's approach excluded these indirect laundering routes. Chainalysis cited its own data, showing $2.2 billion in crypto was stolen last year, with $1.7 billion ultimately reaching exchanges after being laundered.

TRM Labs, another analytics firm referenced in Binance's report, issued a clarification, noting that the data used came from a private dataset and only reflected direct exposure, not total illicit flows. Binance updated its analysis two days later, clarifying it was conducted internally using raw data from Chainalysis and TRM Labs, and maintained its figures for direct links.

This dispute occurs amid Binance's efforts to rebuild its compliance image after paying a $4.3 billion penalty in 2023 for anti-money laundering failures and other violations. Former CEO Changpeng 'CZ' Zhao served a four-month prison sentence and was later pardoned. Binance highlighted its compliance measures, including a 96% to 98% reduction in illicit exposure, processing over $90 billion daily, and employing 1,280 risk and compliance staff.

The core issue underscores that without a unified definition of illicit activity, measuring crypto crime remains a narrative battle rather than a data-driven one.