Hacked Funds Left Out: Chainalysis Challenges Binance's Illicit Activity Claims

Binance and Chainalysis have clashed over the methodology used to measure illicit activity on cryptocurrency exchanges, with the blockchain analytics firm challenging the exchange's claim that only 0.018% to 0.023% of trading volume across top platforms is tied to criminal wallets. Binance's November 17 analysis, which leveraged data from Chainalysis and TRM Labs, asserted that its compliance efforts have significantly reduced exposure to illicit funds. However, Chainalysis responded on November 28, clarifying that Binance's figures excluded critical categories of crime, such as ransomware and hacked funds, and relied on a narrow definition of direct exposure.

The dispute centers on Binance's internal analysis, which it updated to specify that the calculation was conducted using raw datasets from Chainalysis and TRM Labs. Binance highlighted a 96%–98% reduction in illicit fund exposure from January 2023 to June 2025, attributing this to enhanced compliance measures, including a 1,280-person workforce and AI-driven monitoring tools. Chainalysis, however, emphasized that Binance's methodology omitted indirect flows—transactions routed through intermediate wallets—which are commonly used by criminals to obscure origins. The firm noted that such omissions could understate the true scale of illicit activity, particularly given the $2.2 billion in crypto stolen through hacks last year.

Binance's claims come amid ongoing legal scrutiny, including a $4.3 billion U.S. penalty in 2023 for anti-money laundering failures and sanctions violations. Founder Changpeng "CZ" Zhao stepped down after a prison sentence for compliance lapses, though he recently received a presidential pardon. The exchange has defended its updated methodology, stating it provides clarity on how exposure is measured, but Chainalysis has not disputed Binance's operational assertions.

The broader implications of this dispute highlight the challenges in quantifying illicit crypto activity. While Binance argues its approach reflects a more conservative and transparent assessment, Chainalysis contends that a comprehensive view requires inclusion of all crime categories. This tension underscores the need for standardized metrics in the industry, as regulators and investors increasingly demand accountability from crypto platforms.