Iran's Crypto Economy

Throughout 2022, Iran’s economy was dogged by the enduring impacts of the COVID-19 pandemic, episodes of civil unrest, and international sanctions that limited its access to foreign financial markets.

In this context, Iranians continued to embrace cryptocurrencies despite falling token prices. In 2022, incoming crypto volume to Iranian exchanges approached USD 3 billion, according to research by TRM Labs, which monitors public transaction data for over 100 exchanges with active websites in Iran. 

Key findings include:

• Iran’s dominant crypto exchange, Nobitex, processed 87% of all incoming volume.
• The blockchain TRON saw heaviest usage, comprising 65% of all incoming volume at Iranian exchanges
• 89% of Iran’s incoming crypto volume was processed by exchanges with Know Your Customer (KYC) requirements.
• 60% of all funds handled by Iranian exchanges in 2022 came from services located outside Iran. Of those, global cryptocurrency exchanges accounted for 80% of incoming volume.
• Incoming illicit volumes to Iranian exchanges are in line with the global average.
• The use of DeFi, cash to crypto and payment services remains very low, each accounting for less than 1% of both sending and receiving volumes. 
• Entities sanctioned by the U.S. Office of Foreign Assets Control (OFAC) sent less than USD 2 million to Iranian exchanges over 2022.
• TRM Labs has identified instances of Iranians using VPNs and fake IDs to circumvent the compliance systems of international exchanges that bar customers from sanctioned jurisdictions.

Iranian Crypto Adoption

Nobitex is Iran’s largest crypto exchange. It received 87% of all funds, domestic and international, that flowed to Iranian exchanges in 2022 - equivalent to USD 2.6 billion. Four other exchanges: Wallex.ir, Excoino, Aban Tether, and Bit24.cash accounted for another 12%. Financial flows between Iranian exchanges comprised 0.5% of total Iranian crypto volume during 2022, with Wallex.ir the primary sender and Nobitex the primary receiver of funds.

TRM’s analysis showed TRON was the preferred blockchain for transacting, accounting for 65% of incoming volume in 2022, with transactions being conducted in TRX and USDT (TRC20). In the past two years, TRON has become increasingly popular, particularly due to the availability and stability of USDT and significantly lower transaction fees than other chains with USDT, namely Ethereum.  

Iranian Exchanges Employ KYC Controls

Many virtual assets service providers (VASPs) around the world collect documentation on users as part of Know-Your-Customer (KYC) procedures. TRM analysis found that Iranian exchanges match the KYC requirements of the top global exchanges. 

TRM analyzed the KYC procedures for 15 Iranian exchanges and broke down the requirements to conduct transactions into three categories: No Personal Identifying Information (PII) Required (Level 1); PII Required without Document Verification (Level 2); PII and at least one Document Verification required (Level 3). 

Iranian exchanges with the most stringent KYC procedures, including Nobitex, accounted for 89% of incoming crypto volume in Iran in 2022.

Iranian Exchanges Receive Most of their Volume from Global Exchanges

As much as 60% of all funds handled by Iranian exchanges in 2022 came from services located outside Iran. Of those, global cryptocurrency exchanges accounted for 80% of the volume for sending entities and 66% for receiving entities, according to research by TRM Labs. Unhosted wallets and smart contracts accounted for around a tenth of sending entity volume and just over one third of the volume for receiving entities. The use of decentralized finance (DeFi) was negligible, accounting for less than 1% of both sending and receiving volumes.

Cash-to-Crypto Businesses

Cash-to-crypto services, which include cryptocurrency ATMs, voucher services and money service businesses (MSBs), represented just 0.01% of volume sent to Iranian exchanges in 2022. In the case of Iranian exchanges, TRM found that the cash-to-crypto entities sending funds to Iranian exchanges primarily comprised cryptocurrency ATMs located in Europe (72%) and North America (28%). 

Cash-to-crypto businesses, particularly smaller-scale cryptocurrency ATMs, often have weaker KYC requirements and have been linked to illicit activity. While cash-to-crypto services accounted for a small share of overall Iranian crypto volume in 2022, the use of such services  represents heightened compliance risks. 

Obfuscation Techniques

Although Iranians overwhelmingly prefer to use domestic crypto exchanges, TRM Labs has identified instances of Iranians turning to VPNs and fake IDs to circumvent the compliance systems of international exchanges that bar users from sanctioned jurisdictions. 

Domestic Iranian exchanges such as Nobitex discourage customers from using VPNs, which can interfere with compliance checks. However, the use of services such as OpenVPN or Tiket VPN to access foreign exchanges is promoted by Iranian crypto enthusiasts online. These individuals also encouraged VPN use for conducting transactions involving large sums of crypto.

TRM Labs identified a Farsi language cryptocurrency Telegram group, which recommended OpenVPN to access a global cryptocurrency exchange. The Telegram group boasts nearly 54,000 members who post commentary regarding a variety of cryptocurrency related topics such as price updates, advertisements for altcoins, air drops, and discussion regarding cryptocurrency investment opportunities. 

TRM Labs has also identified multiple individuals selling fraudulent IDs for exchange onboarding purposes on Telegram.

These fraudulent IDs specifically targeted global exchanges and gave users access to fake identification (ID) cards from Indonesia, Kazakhstan, Colombia, Switzerland, UAE, and Greece.

Sanctions

Office of Foreign Assets Control (OFAC) Sanctioned Entities

In 2022, three entities that have been the subject of official sanctions designations by the U.S. Office of Foreign Assets Control (OFAC) sent funds directly to Iranian exchanges.  The high-risk Russian exchange Garantex accounted for 91% (nearly USD 1.2 million) of incoming exposure from sanctioned entities to Iranian exchanges. 

Two Iranian individuals who are listed on OFAC’s Specially Designated Nationals (SDN) list sent over USD 110,000 to Nobitex during 2022. Amir Hossein Nikaeen Ravari and Ahmad Khatibi Aghada were named in an SDN List update on September 14, 2022 for cyber and Iran-related sanctions, along with cryptocurrency addresses known to be associated with the individuals. According to the designation, both individuals are affiliated with the Islamic Revolutionary Guard Corps (IRGC).

Exposure to Non-Iranian Illicit Counterparties on Par with Global Average

Despite the fact that Iran is a sanctioned jurisdiction and undertakes a number of illicit financial activities in the fiat world, TRM analysis found that the proportion of illicit volume received by Iranian exchanges - 0.08% - was slightly less than the global average in 2022. 

By contrast Russia, another internationally sanctioned country, has become something of a safe haven for international crypto criminals and other malicious actors, as detailed in a recent TRM report. For example, while 95% of all Russian exchanges have little to no KYC or AML controls, that was the case for only 11% of Iranian exchanges. Such high-risk exchanges process up to 90 times more illicit crypto volume than non high-risk exchanges, according to TRM analysis.

Indeed, of the USD 2.8 million in illicit funds that entered Iran from abroad in 2022, over 30% came from  Garantex, a U.S.-sanctioned Russian-based cryptocurrency exchange. The second-largest source of illicit funds was international investment fraud.

Iranian Blockchain Projects

Two major blockchain projects have been launched in Iran since 2019: Kuknos and Borna. The Kuknos Network was launched in 2019 by Bank Mellat, Bank Melli Iran, Bank Pasargad, and Parsian Bank, four of Iran’s major banking institutions, in conjunction with Tosan, a banking software solution provider. PayMon (PMN), a gold-backed cryptocurrency, is the native cryptocurrency of the Kuknos Network. The Kuknos platform hosts a number of services, including a digital asset wallet and NFT platform.

The development of the Borna blockchain platform since 2019, has been led by the Central Bank of Iran in conjunction with Areatak, an established blockchain solutions provider in Tehran. The developers of the platform expect “Borna to function as a central digital platform for the country’s banking and financial sectors”. The Borna platform was created using Hyperledger Fabric, the open-source blockchain platform developed by US-based IBM and the Linux Foundation.

The creation of Borna using Hyperledger Fabric architecture has been noted as an important step toward the platform being able to be used on an international scale, rather than just inside Iran. In 2019, Saeed Khoshbakht, the CEO of Areatak, stated that “Borna developers are striving to use platforms, tools, and solutions that are globally accepted in using the country’s new technical infrastructure.” 

Iranian Government Involvement in Cryptocurrency

A recent report from the Central Bank of Iran states that crypto-related transactions amounted to approximately USD 197.6 million in the second quarter of the current fiscal year alone. In January 2023, Iran’s government launched the National Task Force on Cryptocurrencies, which will convene twice per month. With participants including the Central Bank of Iran and the ministries of intelligence, energy, industry, mining and trade, the goal of the task force is to enhance coordination between government institutions on crypto-related matters. 

In the global conversation around the development and use of Central Bank Digital Currencies (CBDCs), the Central Bank of Iran (CBI) has been a focal point in the last year. In September 2022, the Iranian government initially announced the pilot launch of the “crypto-rial” , which has been in development since 2018. In January 2023, the CBI stated that the crypto-rial was past its pilot stage and would be ready to be launched on February 7. The CBI announced in early March that the  CBDC is entering its trial phase after successful completion of the pilot stage of testing. In addition to the “crypto-rial,” the governments of Iran and Russia have reportedly been working on a gold-backed stablecoin to be utilized for cross-border payments, which could be an attempt by the two governments to avoid the impact of continued U.S. and international sanctions.

Given the existing volume between Iranian and sanctioned Russian exchanges, collaboration in the development of CBDCs between Russia and Iran may present increased sanctions risks.  TRM will be closely monitoring future activity between the two countries, as well as for changes to flows to and from other illicit counterparties.

Conclusion and Recommendations

The Iranian crypto ecosystem is evolving in unique ways, with significant investment and progress in national crypto projects coupled with relatively low exposure to non-sanctions related illicit finance and higher-risk sectors such as cash-to-crypto and decentralized protocols. These developments may also present compliance challenges for Western exchanges, payment processors, emerging crypto businesses and others in traditional finance. 

Support sanctions compliance and investigations teams with advanced blockchain intelligence. Leading cryptocurrency exchanges use TRM Transaction Monitoring for anti-money laundering and sanctions compliance. In 2019, TRM was the first blockchain intelligence company to integrate with the TRON blockchain, enabling financial crime investigations and anti-money laundering controls for TRON-based assets. In 2022, TRM launched the first jurisdiction-based screening solution for cryptocurrency transactions, enabling exchanges and other virtual asset service providers (VASPs) to generate alerts based on transactions to and from VASPs located in sanctioned or high-risk jurisdictions. To get started, contact us.