Analysts say that the unknown hacker behind the KuCoin breach is selling the stolen ERC-20 tokens on Uniswap. Although selling tokens on the Ethereum-based decentralized exchange allows the hacker to obtain Ether (ETH), it doesn’t mean it’s laundered.

All transactions made on the Ethereum blockchain network are traceable using blockchain explorers, meaning even if the tokens are converted to Ether, the stolen amounts would still leave traces. This means exchanges can (and probably will) suspend any exchange address that is associated with the tainted funds.

The 1-day chart of Ether. Source: TradingView.com

Attempting to sell tens of millions of dollars worth of traced funds immediately after a breach is risky. All major exchanges are on alert, and in this specific case, Tether (USDT) froze the funds linked to the KuCoin hack.

As Cointelegraph previously reported, Bitfinex and Tether chief technical officer Paolo Ardoino said Tether froze $33 million worth of USDT but Ardoino emphasized in a follow-up statement that there are stringent guidelines that must be followed to freeze funds. He explained:

“Tether can decide to freeze funds in 2 situations: – law enforcement / regulator request – funds are sent to unrecoverable addresses (completely at tether discretion) This ability does not entitle crypto users to participate to stupid scams or paying less attention.”

With Tether actively tracking the funds and major exchanges, like Binance and Bybit contacted by KuCoin, it has become increasingly difficult to sell the funds. KuCoin CEO Johnny Lyu said:

“We are in contact with many major crypto exchanges such as Huobi, Binance, OKEx, BitMax, and Bybit, as well as blockchain projects, security agencies, and law enforcement to work on this. Some effective measures have been taken, and we will update with more details soon.”

The hacker sold the ERC-20 tokens to obtain ETH, but the transactions and Ethereum addresses can be traced using Etherscan.

Since existing major decentralized exchanges do not have privacy solutions, the ERC-20 tokens would leave traces for exchanges to follow. For this reason, many analysts are not worried that the movement and market sale of Ether tokens will place pressure on Ether price.

Will Uniswap become the preferred destination for stolen coins?

According to Ardoino, selling the stolen ERC-20 tokens on a decentralized exchange like Uniswap carries interesting repercussions.

He suggested that in the future, decentralized exchanges implement privacy solutions like confidential transactions to appeal to users. Ardoino said:

“This might have interesting repercussions. While we’re staring at laundering while it happens on a transparent DEX, couple of considerations arise for me: Will liquidity providers be tainted? Privacy is key, probably the next DEX should use confidential transactions.”