The evolution of new technologies invariably invites exploitation by malicious entities, and the blockchain sector is no exception. Recent waves of Ponzi schemes underscore the challenges faced, with decentralized tools often hijacked by nefarious actors for illicit fund transfers.
In this piece, we aim to elucidate how platforms like Tokenlon leverage blockchain's transparency and their own security protocols to mitigate the risk of exploitation while serving the legitimate trading needs of users. Our goal is to foster a safer, more transparent environment for decentralized exchange (DEX) operations.
Tokenlon has long been committed to combating financial crimes and preventing illicit activities.
Tokenlon’s Core Values and Transparency
Independence and Development:
Tokenlon, incubated by imToken since 2018 and independently operated since 2019, has processed over $32.5 billion in transactions, emerging as the preferred choice for users seeking token exchange services.
Business and Innovation:
Tokenlon supports six blockchain networks, including Ethereum and Arbitrum, offering users secure and transparent decentralized trading services. All transactions conducted through Tokenlon are recorded on the chain, ensuring transparency and traceability.
As a DEX, Tokenlon stands out for its unique RFQ mechanism, introduced in 2019. By engaging professional market makers to fulfill users' trading needs, Tokenlon provides users with better prices and enhanced liquidity.
The Security Design of imBTC
In 2019, Tokenlon introduced an independent service known as imBTC. The minting and burning of imBTC occur across chains, with a strong emphasis on security and transparency in its design. Users can verify the reliability and transparency of transactions through on-chain data.
| Mint imBTC | User initiates BTC transfer, sending BTC to the imBTC gateway address. The op_return includes the Ethereum address for receiving imBTC. Check the example here |
| Minted imBTC is sent to the Ethereum address provided by the user. The data includes the hash of the BTC transfer initiated by the user.Check the example here | |
| Burn imBTC | User initiates imBTC transfer, sending imBTC to the burn address. The data includes the Bitcoin address for receiving BTC. Check the example here |
| The corresponding amount of BTC is transferred to the Bitcoin address provided by the user. The op_return includes the hash of the imBTC transfer initiated by the user. Check the example here |
Note: For operational reasons, the imBTC service was discontinued on January 31, 2024. Learn more.
Common Challenges Faced by DEX
In various scams, malicious actors exploit DEX to transfer and exchange illegal funds. During money laundering, they often utilize on-chain multi-hop transactions to evade tracking, rapidly transferring funds between different addresses on the chain to obscure the flow of funds. Generating addresses for scammers involves minimal cost, and the algorithms of mainstream Know Your Transaction (KYT) services are currently limited in tracking, constrained by technology and cost, which makes unrestricted tracking difficult.
Therefore, the timely identification of illegal addresses after multiple hops is a common challenge in the cryptocurrency industry. For all DEXs, KYT may lag behind the multi-hop transfer of illegal funds.
On the flip side, the decentralized nature of DEX also has inherent advantages. Since transaction data is publicly transparent on the chain, malicious actors are unable to use DEX like Tokenlon to conceal the source of funds. They can only temporarily evade KYT.
How Tokenlon Prevents and Combats Illegal Activities
Additionally, Tokenlon's RFQ mechanism, mentioned earlier, actively contributes to preventing fraudulent activities. Through this mechanism, Tokenlon engages professional market makers, ensuring that transactions undergo dual KYT identifications.
On one hand, Tokenlon collaborates with third-party KYT professionals and specialized security firms to synchronize extensive risk address databases promptly and comprehensively. This preemptive approach enables the identification and interception of hundreds of thousands of illegal addresses before they interact with Tokenlon.
On the other hand, professional market makers prioritize fund security and regulatory compliance when facilitating user transactions to prevent the contamination of their addresses by illicit funds. They typically take the following measures:
- Supporting specific trading pairs only.
- Notifying Tokenlon for mutual verification upon detecting abnormal addresses. They often invite security service providers for assessment.
- Some market makers comply with regulations and use KYT to identify addresses. If an address raises suspicion, they will not offer quotes to DEX users.
- Both Tokenlon and market makers have appropriate risk control strategies, and anomalous addresses may result in users being blacklisted.
Furthermore, Tokenlon maintains a dedicated security and compliance team to handle and cooperate with user and law enforcement requests for evidence gathering globally.
Through continuous security practices, we recognize that defending against illicit activities in DEX is dynamic, especially given the rapid evolution of the cryptocurrency industry, which imposes greater demands on DEXs. Tokenlon consistently educates users on security, sharing insights into evolving industry practices to enhance user awareness and mitigate potential scams and risks.
Tokenlon remains committed to providing users with secure and reliable exchange services while innovating and staying abreast of industry developments.