Main Points:
- On-chain analysis by ZachXBT links Garden Finance to laundering of funds stolen in the Bybit hack
- Decentralized bridges’ open architecture poses structural challenges for anti-money laundering
- Over $3.2 billion lost to cross-chain bridge hacks since 2021, with $1.5 billion in the Bybit incident alone
- FATF’s June 2025 Travel Rule update aims to enhance VASP transparency by 2030
- Emerging tools like XChainWatcher and ABCTRACER offer real-time cross-chain traceability
1. The Bybit Hack and Garden Finance Involvement
On February 21, 2025, Bybit suffered a massive security breach resulting in the theft of approximately $1.46 billion in cryptocurrency. Shortly thereafter, blockchain investigator ZachXBT uncovered on-chain evidence showing that a portion of these stolen funds was routed through the Garden Finance bridge protocol on multiple occasions. According to ZachXBT’s X (formerly Twitter) posts, related addresses bridged assets via Garden Finance in discrete batches, suggesting the protocol was used to obfuscate the origin of illicit funds.
This revelation has cast doubt on Garden Finance’s claim of being a “trustless, decentralized” bridging solution, exposing how the lack of pre-transaction controls can facilitate money laundering at scale.
2. Structural Risks in Decentralized Bridges
Decentralized bridges like Garden Finance enable seamless token transfers across chains—Ethereum, BNB Chain, Arbitrum and beyond—by design. While this interoperability is invaluable for DeFi growth, it also introduces inherent AML vulnerabilities:
- Lack of On-Chain Enforcement: Protocols do not vet transaction parties or monitor flow pre-execution, leaving no gatekeeper to block suspicious transfers.
- Anonymity Through Splitting: Bad actors can split large sums into granular on-chain transactions across multiple paths, evading pattern-based detection.
- Mixing via Multiple Bridges: Funds can hop through several bridge protocols in sequence, deepening the trail’s complexity.
These structural weaknesses create “laundering highways” that conventional AML systems struggle to police efficiently.
3. Industry-Wide Impact: Cross-Chain Bridge Hacks
The Garden Finance case is one example among many. Cross-chain bridge vulnerabilities have been relentlessly exploited:
- Since May 2021, more than $3.2 billion has been lost to bridge hacks, as revealed by recent academic research using real-world attack data.
- In 2022 alone, Chainalysis estimated $2 billion stolen across 13 bridge exploits, with the Ronin Bridge losing $625 million to the Lazarus Group.
- April 2025 saw DeFi protocols lose $92.5 million across 15 hacks—an increase of 27.3% year-over-year—highlighting ongoing security shortfalls.
- The Bybit breach accounted for roughly $1.5 billion of losses in 2025, marking it as one of the largest single incidents to date.
These figures underscore that decentralized bridges have become preferred tools for both theft and subsequent laundering.
See the chart above for a visual breakdown of the top cross-chain bridge hack losses to date.
4. Regulatory Responses and AML Standards
In response to the growing threat, global regulators are tightening AML requirements:
- FATF Travel Rule Update (June 18, 2025): The FATF’s revised Recommendation 16 mandates that Virtual Asset Service Providers (VASPs) share detailed originator and beneficiary information for transfers, effective by end of 2030 to enhance cross-border transparency.
- EU’s Recast TFR (Regulation 2024/1620): Scheduled for July 10, 2027, this regulation will enforce the Travel Rule across all EU member states for transfers above €1,000, aligning with FATF standards.
- Broader Mutual Evaluations: FATF and MONEYVAL mutual assessments now scrutinize jurisdictions’ ability to counter money laundering, urging improvements in legal frameworks covering decentralized finance.
These measures aim to close AML gaps, but decentralized bridges may still evade centralized oversight without on-chain compliance mechanisms.
5. Technological Solutions for Traceability
To bolster forensic capabilities, new on-chain tracing tools have emerged:
- XChainWatcher: A Datalog-powered monitoring system that detected the Ronin and Nomad exploits in real time, highlighting over $3.2 billion lost since 2021.
- ABCTRACER: Designed for DeFi ecosystems, this tool uses event-log mining and named-entity recognition to achieve 91.75% bidirectional traceability across 12 major bridges, facilitating rapid attack detection.
- Chainalysis Cross-Chain Tracing: Industry-leading analytics platforms now automate the tracking of funds through multiple chains, mixers, and DEX swaps, empowering investigators to follow laundering flows.
By integrating these advancements with regulatory mandates, VASPs and compliance teams can more effectively detect and deter illicit bridge usage.
Conclusion
The Garden Finance controversy underscores the dual nature of decentralized bridges: they power DeFi growth yet simultaneously open doors for large-scale money laundering. As cross-chain losses exceed billions annually, a multi-pronged approach—combining updated global AML standards, robust on-chain tracing technologies, and informed protocol design—will be essential. Stakeholders must carefully evaluate bridge trust models, implement rigorous monitoring, and collaborate on transparent disclosure to safeguard the integrity of the blockchain ecosystem.
