Peel chain: what is it and to what extent is it risky?

What is a peel chain?

A peel chain, or peeling chain, is a transactional pattern on the blockchain. The aim is to launder large amounts of cryptocurrency through multiple transactions. In the fiat world, a peel chain is the equivalent of layering.

It occurs when one large sum of cryptocurrency is sent to multiple addresses in a series of transactions in which the sum is peeled. More specifically, a small amount is taken off or, peeled off, the chain to be sent to a new address. Then, this process is repeated several times. At some point, the funds will reach the destination, often an exchange platform or a dark web entity. 

Are peel chains risky?

A peel chain is a way to obfuscate the trail of cryptocurrencies with the goal of laundering the funds. A blockchain is a public ledger and everyone can access what happens on it. Therefore, this pattern makes it difficult to trace crypto funds and addresses. Nefarious actors use it to conceal the origin of illegal funds.

Peel chains are thus risky since they can be used to hide the proceeds of illegal activity. A peel chain is one technique for laundering money which constitutes a major risk money laundering (ML) red flag. Also, due to the low amount of cryptocurrency transferred, it doesn’t always trigger red flags or the need to submit mandatory reports like suspicious activity reports (SARs) or suspicious transaction reports (STRs).

As peel chains hide tracks on the blockchain, it’s very difficult for compliance teams to spot them when monitoring their cryptocurrency transactions. However, blockchain analytics tools can spot and provide clear visualization of such laundering techniques. These tools are therefore very useful for compliance teams to help them in the ML risk mitigation process.

How to spot a peel chain with blockchain analytics?

Blockchain analytics tools automatically spot suspicious and illegal activity on the blockchain including peel chains. For example, we can see below that Scorechain’s software spotted a peel chain. As a result, the software triggered the “Peeling chain of unknown origin” risk indicator. Therefore, users are promptly notified of any ML risks.

Moreover, our risk indicators can spot direct exposure, even for small amounts, or for different thresholds. Therefore, the indicators will notify users in the event of a transaction with links to peel chain. And, they will be able to take appropriate steps to mitigate ML/TF risks.

Furthermore, our Exploration Tool can also help you clearly visualize and analyze peel chains. In the example below, we asked the tool to spot links with an address and Silk Road, the darkweb marketplace. We can see that the Silk Road address sent funds through various intermediate wallets (the peel chain). Some of the funds eventually reached various well-known exchange platforms.

Note: The Scorechain’s Exploration Tool can ignore peel chain patterns and show direct exposure to the counterparty (in one hop).

To resume, a peeling chain is one kind of crypto ML red flag that compliance team should be careful about. Scorechain Blockchain Analytics simplifies compliance teams’ work by providing all the needed tools to adopt proper processes for the prevention of ML.

Blockchain analytics tools help companies dealing with cryptocurrency to comply with anti-money laundering (AML) regulations and help them save time doing so. Are you looking for tools to help you in your crypto compliance journey? Don’t hesitate to ask for a tailored free demo of Scorechain Blockchain Analytics.

About Scorechain

Scorechain is a Risk-AML software provider for cryptocurrencies and digital assets. As a leader in crypto compliance, the Luxembourgish company has helped more than 200 customers in 45 countries since 2015, ranging from cryptocurrency businesses to financial institutions with crypto trading, custody branch, digital assets, customers onboarding, audit and law firms, and some LEAs.

Scorechain solution supports Bitcoin analytics with Lightning Network detection, Ethereum analytics with all ERC20 tokens and stablecoins, Litecoin, Bitcoin Cash, Dash, XRP Ledger, Tezos, Tron with TRC10 and TRC20 tokens, and BSC with BEP20 tokens. The software can de-anonymize the Blockchain data and connect with sanction lists to provide risk scoring on digital assets, transactions, addresses, and entities. The risk assessment methodology applied by Scorechain has been verified and can be fully customizable to fit all jurisdictions. 300+ risk-AML scenarios are provided to its customers with a wide range of risk indicators so businesses under the scope of the crypto regulation can report suspicious activity to authorities with enhanced due diligence.