Crypto Typologies — Mixers, Chain-Hopping, DeFi & NFTs *(OUTLINE + BULLET BODY)*

The blockchain is, famously, a public ledger — every transaction visible forever. So you'd think laundering crypto would be impossible. It isn't, and the reason is that launderers have built an entire toolkit whose only job is to break the link between where money came from and where it ends up. That's layering — the same stage you learned in Domain 1 — just rebuilt for crypto. On the CAMS® exam, Domain 6 questions love to name a technique and ask you to identify it, or hand you a fact pattern and ask which typology it describes. So this lecture is a field guide: mixers, chain-hopping, peel chains, DeFi and bridges, privacy coins, and NFT wash trading — what each one is, and the red flag it leaves behind.

- A **mixer (or tumbler)** pools virtual assets from many users and **redistributes** them, so the coins coming out are not traceably the coins that went in. The goal: **sever the link** between source and destination addresses. - Two flavors: **custodial mixers** (a service holds and shuffles funds) and **non-custodial / smart-contract mixers** (code pools and mixes without an operator holding keys). - **Red flag:** funds flowing **to or from a known mixing service** is a recognized high-risk indicator — FinCEN advisories and FATF guidance both flag mixer use. Legitimate users rarely need to obscure provenance. - **Enforcement reality:** authorities have sanctioned and prosecuted mixing services used to launder proceeds (e.g., **OFAC has designated mixer services** tied to illicit finance). Interacting with an **OFAC-sanctioned mixer** can be a sanctions violation, not just a red flag. - This is a **layering** technique — placing distance between proceeds and their origin.

- **Chain-hopping** = rapidly **converting one virtual asset into another** (e.g., Bitcoin → a privacy coin → a stablecoin → Ether), often across multiple exchanges or blockchains, to **fragment the trail**. - Each hop crosses a different ledger or asset, so a single analytics view doesn't follow the whole path — investigators must stitch together multiple chains. - Frequently paired with **swapping into privacy coins** mid-chain to blind the analytics, then back into a mainstream asset to cash out. - **Red flag:** rapid, repeated cross-asset conversions with **no economic purpose** other than to obscure — especially through high-risk or unregulated exchanges.

- A **peel chain** moves a large balance through a long sequence of transactions, **"peeling" off a small amount at each step** to a cash-out or destination address, while the bulk continues hopping to the next address. - Visually it's one big sum walking down a chain of addresses, shedding small slices repeatedly — designed to look like ordinary churn and to dribble value out below detection thresholds. - **Red flag:** a long chain of sequential transfers where small, similar amounts repeatedly split off toward exchanges/off-ramps. It's the on-chain cousin of **structuring**.

- **DeFi (decentralized finance):** financial services (lending, trading on **decentralized exchanges/DEXs**, yield) run by **smart contracts** rather than an intermediary. Often there's **no VASP** performing CDD — a coverage gap FATF specifically flags. - **Cross-chain bridges:** protocols that move value **between different blockchains** (e.g., Ethereum ↔ another chain). Launderers use bridges to **chain-hop across ecosystems**, complicating tracing and jumping to chains with weaker analytics coverage. - **DEXs / swaps** let users trade assets **without identity checks** in many cases — useful for layering without a KYC chokepoint. - **FATF point:** where a person controls/profits from a DeFi arrangement, they may still be a **VASP** with obligations — but truly disintermediated protocols and **P2P** transfers can fall outside regulated coverage. That gap is the risk. - **Red flag:** funds routed through DEXs/bridges to evade KYC and break cross-chain traceability, especially toward unregulated services.

- **Privacy coins** (e.g., Monero, Zcash in its shielded mode) use cryptography — **ring signatures, stealth addresses, zero-knowledge proofs** — to **conceal sender, receiver, and/or amount**, defeating ordinary blockchain analytics. - Unlike Bitcoin (pseudonymous but **traceable**), privacy coins are designed to be **untraceable** on-chain. - **Red flag:** conversion of mainstream assets into privacy coins with no clear business rationale; many regulated VASPs **delist** privacy coins to avoid the AML risk, so their use pushes activity toward higher-risk venues.

- **NFTs (non-fungible tokens):** unique blockchain tokens representing ownership of a digital (or tokenized) item. The **subjective, arbitrary value** of art-style NFTs makes them a vehicle to move value while disguising it as a "purchase." - **NFT wash trading:** a launderer **buys their own NFT** (using wallets they control on both sides), moving "clean-looking" sale proceeds while inflating apparent value and creating a veneer of legitimate trading. It mirrors classic **trade-based laundering** logic — mispricing to move value. - **Self-laundering via mispriced art:** overpaying for a worthless NFT is a way to transfer value to a counterparty (or to oneself) under cover of a market transaction. - **Red flag:** NFT trades between **related/self-controlled wallets**, wildly inconsistent pricing, and rapid buy-sell cycles with no genuine market.

- **Placement** in crypto: converting illicit **cash into virtual assets** (e.g., at a P2P exchange or crypto ATM), or proceeds that are already digital (ransomware, scams). - **Layering** in crypto: **mixers, chain-hopping, peel chains, DeFi/bridges, privacy coins** — almost every typology here is a layering tool. - **Integration** in crypto: **cashing out** to fiat through an exchange/off-ramp, or buying assets (incl. NFTs/real-world goods) so the value re-enters the economy looking legitimate. - Exam framing: when a question describes obscuring the on-chain trail, the stage is almost always **layering**, and the cash-out is **integration**.

So here's your crypto-typology field guide in one breath: mixers pool and shuffle coins to sever the link; chain-hopping fragments the trail across assets and blockchains; peel chains dribble value off a big balance, address by address, like structuring on-chain; DeFi and cross-chain bridges let value move and trade without a KYC chokepoint; privacy coins use cryptography to make transactions genuinely untraceable; and NFT wash trading moves value through self-dealt, mispriced "sales." Underneath all of it is one familiar idea — this is layering, dressed in new technology. Next, we flip to the investigator's side of the table: how blockchain analytics actually follows this activity — clustering, attribution, VASP red flags, on- and off-ramp risk — and, just as important, where on-chain analysis hits its limits.