On-chain investigator ZachXBT has alleged Tokenlon DEX of handling illicit trading with most volumes dominated by scams and frauds.
The allegations, made on May 4, involve a range of serious issues, including “pig butchering” scams, links to human trafficking-related funds, investment fraud, and activity tied to Chinese underground markets.
ZachXBT’s allegations have been presented as a loose or speculative accusation, rather have landed as a serious accusation on the decentralised exchange. Additionally, the blockchain investigator has also named specific entities, pointed to supporting on-chain data, and taken a notably firm stance, describing the situation as moving into “war-time mode.”
The on-chain investigator’s claims come against the background of a number of regulatory enforcement actions recently taken against DeFi protocols by U.S. and European regulators.
Accusation comes as Tokenlon promotes new swap
The case came up after Tokenlon had just promoted its ETH/USDT swap service on X. After the promotional post, blockchain investigator ZachXBT stepped in with a direct response, questioning where most of the platform’s trading volume was coming from.
He suggested that a large share could be tied to illicit activity, including scams, trafficking-related funds, investment fraud, and underground markets.
ZachXBT’s attack soon snowballed into an accusation against Tokenlon co-founder Ben He, with serious public accusations.
To substantiate his allegations, the blockchain investigator also said that he is ready to step up his probe into Tokenlon as well as its associated wallet platform imToken.
Moreover, he clubbed Tokenlon at par with other exchange platforms such as Butter Network, HiFiSwap, and SWFT Blockchain, highlighting that the exchanges may have also been involved in moving the illicit money.
Tokenlon’s previous fraud cancellations
Tokenlon has already been cited in discussions concerning compliance. Based on studies conducted by Merkle Science, CryptoForensic, and TIME magazine, 57 percent to 60 percent of Tokenlon’s transactions from 2022 to 2023 have been linked to scam addresses.
Victim funds consistently arrive through Tokenlon as ETH or USDC, then depart as USDT or DAI, obfuscating the trail.
ZachXBT openly corroborated other analysts’ observation that Tokenlon has become a typical signal for detecting Chinese illegal financial flows and pig butchering in compliance operations. “Few comprehend,” he retorted. “Meanwhile, it’s well documented in smaller compliance circles.”
Why is this serious?
Platforms targeted by ZachXBT have, on previous occasions, experienced rapid drops in liquidity when people rapidly withdraw their funds. Often, public announcements on fraud claims result in a loss of trust and dampening of sentiments among market participants.
This particular situation may be explained by the desire for caution on the part of the liquidity providers and traders who are trying to protect themselves from possible involvement in the potentially dangerous network.
In the short-term, LON tokens, along with other imToken-related components, may become subject to selling if the situation worsens. Further, Tokenlon projects can see clear issues of compliance in case the allegations come true.
Even minor connections between the project and illicit funding may lead to increased regulatory risks. Moreover, allegations raised by ZachXBT turn out to be almost always correct and are highly valuable in the market.
