Crypto plays a significant role in funding the global fentanyl trade, sparking recent calls for tighter DeFi rules on Capitol Hill. However, suppliers in China that ship chemicals to manufacture the deadly drug receive funds that mostly originate from centralized crypto exchanges, according to a new report.
According to the report released by Elliptic on Thursday, the blockchain analytics firm identified $32 million worth of crypto income in dealers’ digital wallets. It found 100 China-based suppliers that accepted crypto in exchange for pill presses and fentanyl precursor chemicals.
Some suppliers also offered Elliptics’ researchers fentanyl itself.
Crypto’s connection to fentanyl, a powerful synthetic opioid, was called out by Massachusetts Senator Elizabeth Warren last month, who said Washington must use its power to “shut that down.”
Decentralized finance, known as DeFi, refers to a catchall term for financial tools built using blockchain technology. A bipartisan group of lawmakers on Capitol Hill highlighted DeFi’s link to fentanyl when they introduced a bill to regulate DeFi earlier this week.
Without financial intermediaries to comply with U.S. sanctions or anti-money laundering (AML) requirements, lawmakers said DeFi represents a dangerous vector for financial crime. However, Elliptic said dealers’ income “mostly originated from centralized exchanges.”
The statement suggests that DeFi could still play a role in facilitating trade that’s helped fuel the opioid epidemic, officially declared a public health emergency by the White House in 2017.
Elliptic did not immediately respond to a request for comment from Decrypt.
Digital payment agencies holding accounts at major exchanges outside of China often act as a buffer between buyers and brokers, the report said. These brokers often use English-speaking agents to promote and sell fentanyl precursor chemicals on suppliers’ behalf.
“Our research showed that multiple suppliers provided identical payment addresses, allowing us to identify when a broker might have been used,” Elliptic said. “The addresses themselves were almost exclusively exchange deposit addresses rather than private wallets or externally owned accounts.”
Elliptic’s researchers found that suppliers prefer fiat money sent via a bank transfer or remittance service when dealing with them directly.
The report follows research from Elliptic in May that said suppliers’ accounts mostly belonged to “three specific exchanges,” which were notified about the activity. In the report released on Thursday, Elliptic mentions funds traced to a Russian exchange called Garantex—which is sanctioned in the U.S.—and an unnamed Australian-based exchange.
