Cryptocurrency as a Dual-Use Tool for Economic Resilience and Illicit Finance in Sanctioned Regimes: Assessing the Geopolitical and Investment Risks of DeFi Infrastructure

The paradox of decentralized finance (DeFi) lies in its dual nature: a lifeline for economic resilience in sanctioned regimes and a conduit for illicit finance. As global sanctions tighten, nations like Iran, Russia, and North Korea have weaponized DeFi infrastructure to bypass restrictions, while citizens in hyperinflationary economies adopt stablecoins for survival. Yet, this duality creates a volatile landscape for investors, where geopolitical risks, regulatory crackdowns, and market instability collide.

Economic Resilience: DeFi as a Tool for Survival

Sanctioned regimes have repurposed DeFi as a critical infrastructure to sustain their economies. Iran, for instance, leveraged its low-cost electricity to establish Bitcoin mining operations, generating revenue while circumventing U.S. sanctions. By 2024, the country had funneled $4.18 billion in capital flight through centralized exchanges, a trend that underscores the strategic value of crypto in evading financial isolation. Similarly, Russia processed $49 billion in crypto payments during Q4 2023–Q1 2024, using digital assets to fund its war effort and maintain economic continuity.

North Korea's approach is more insidious: the Lazarus Group systematically stole over $1.34 billion in cryptocurrency in 2024, directly funding its military and weapons programs. Meanwhile, in Venezuela, citizens abandoned the failed Petro cryptocurrency and turned to Tether as a hedge against hyperinflation, illustrating how DeFi can serve as a grassroots tool for financial stability.

Illicit Finance: The Dark Side of DeFi

While DeFi's borderless nature empowers economic resilience, it also enables large-scale sanctions evasion. In 2024, sanctioned jurisdictions accounted for 39% of global illicit crypto transactions, with $15.8 billion in inflows. No-KYC exchanges-unregulated platforms that facilitate anonymous transactions-have become central to this ecosystem. Despite aggressive enforcement actions, such as Germany's "Operation Final Exchange" (which seized 47 Russian-language no-KYC exchanges) and the UK's "Operation Destabilise" (resulting in 84 arrests), these platforms persist, often rebranding after shutdowns.

The U.S. Treasury's Office of Foreign Assets Control (OFAC) responded with 13 crypto-related designations in 2024 and imposed $430 million in penalties, a 40% increase from 2023. However, decentralized protocols like Tornado Cash, which enable privacy-focused transactions, remain difficult to regulate. After U.S. sanctions in 2022, Tornado Cash's activity plummeted, but similar tools continue to emerge, highlighting the challenges of enforcing compliance in a decentralized world.

Investment Risks: Navigating a Shifting Landscape

For investors, the DeFi market presents both opportunity and peril. By 2025, the DeFi market had reached $51.22 billion, with projections of 8.96% CAGR through 2030. However, this growth is shadowed by geopolitical and regulatory risks. The ODNI warned in its 2025 Threat Assessment that Russia, Iran, and North Korea are leveraging DeFi and cyber capabilities to destabilize global financial systems.

Regulatory clarity in the U.S. and EU has unlocked institutional flows, but compliance costs remain high. The EU's MiCA regulations, operational since December 2024, have reduced barriers for banks adopting on-chain settlement, yet AML/KYC enforcement actions continue to target non-compliant DeFi applications. Smart contract vulnerabilities and oracle manipulation further complicate the risk profile, with attacks evolving to bypass time-weighted average safeguards.

Conclusion: A Call for Prudent Innovation

The dual-use nature of DeFi infrastructure demands a nuanced approach from investors and policymakers. While DeFi offers unprecedented access to financial services for sanctioned populations, its misuse for illicit finance threatens global stability. The Financial Action Task Force (FATF) and OFAC are racing to close loopholes, but the decentralized, borderless nature of crypto ensures that enforcement will remain a cat-and-mouse game.

For investors, the key lies in balancing innovation with risk mitigation. As the DeFi market matures, projects that integrate robust compliance frameworks and transparent governance will likely outperform those that ignore regulatory realities. The future of DeFi hinges on its ability to reconcile its promise of financial inclusion with the imperative to prevent its exploitation by bad actors.