Research Report No. 19 · Compliance & Forensics

Nested services in the crypto market

Hidden intermediaries, compliance gaps, and new approaches to blockchain forensics

USD 7.97 billion
Gross transaction volume 2017–2025 (Crystal Intelligence)
2.275.270
Captured transactions via Nested Services (Crystal)
39
Host exchanges, 2,052 attributed wallet addresses (Crystal)
87,4 %
of the recorded volume is attributable to a single host (Crystal)
Stacked glass plates around a luminous core – Nested Services in the crypto market

Whitepaper 2026

Research focus

Why the visible Crypto exchange is not necessarily the actual economic transaction service provider – and what consequences this has for investigations, sanctions controls, compliance and the assessment of payment flows.

Source: Original analysis by Crystal Intelligence (August 2026), FATF, EBA, EU law, BaFin and US Treasury Department. Our own services include: independent source verification, methodological review, risk assessment and forensic audit model.

Executive Summary

Nested services are crypto service providers that serve their customers through accounts, wallets, or liquidity and payment infrastructure provided by other vendors. Therefore, an on-chain transaction often identifies the host exchange, but not the actual intermediary serving the customer or its end customer. This lack of clarity can affect both regular business models and high-risk activities. [1]

Crystal Intelligence's dataset for 2017 to 2025 identifies approximately USD 7.97 billion in gross transaction volume, 2,275,270 transactions, 2,052 attributed wallet addresses, and 39 host exchanges. According to the study, 87.4 % of the recorded volume is attributed to a single host. These figures represent the subset identified by Crystal – neither the entire market nor proven illicit money flows. [1]

Our own research shows that the issue is now explicitly addressed in international standards and European supervisory guidelines. The FATF addresses regulatory gaps in offshore VASPs and the indirect use of regulated platforms; the EBA guidelines and the EU travel rule require risk-appropriate due diligence and the handling of missing transfer information. [2–6]

Key findings

  • A regulated host is not proof that all underlying end customers have been vetted equally.
  • „Nested“ is an infrastructure and business model description, not a legal assessment.
  • On-ChainCluster, Payment rhythms and sweep patterns are indicators; reliable attribution requires additional confirmation.
  • The investigative question is not simply "To which stock exchange did the money flow?", but "Which service provider controlled the customer relationship and who initiated the transfer?".
  • A reliable auditing procedure must strictly separate attribution, legal classification, and securing of evidence.

01 Concept and technical function

A nested service can act as a broker, OTC desk, swap service, payment processor, or informal exchange and may use the infrastructure of a larger virtual asset service provider for deposits or withdrawals.VASP) or Crypto-Asset Service Provider (CASP). For users, the smaller provider acts as the direct contractual partner, while the blockchain only shows an account or hot wallet of the host at a relevant point. [1]

ModelmarkMain problem
Disclosed hostingFormal business customer relationship between nested service and hostThe host knows the business relationship, but not necessarily every end customer.
Undisclosed hostingInfrastructure for third-party transactions, managed as a private or standard accountCustomer volume and actual service provider role can be obscured.
Hybrid / multi-tiered hostingOwn wallets and external exchange accounts are combined.Attribution and responsibilities across multiple levels are complicated

The key distinction is between three levels of identity: the account holder at the host, the operational operator of the customer-oriented platform, and the economically acting end customer. None of these levels may be equated with another without evidence.

LEVEL 1 · ON-CHAIN VISIBLE Account holder at the host Host exchange account or hot wallet (VASP/CASP) LEVEL 2 · CONCEALED operational operator of the platform Broker · OTC Desk · Swap · Payment Processor LEVEL 3 Economically trading end customer
Figure 1: Three identity levels in nested services. The blockchain typically only shows the outer layer. (My own illustration.).

02 Market size: What the figures actually prove

Key figureCrystal evaluation 2017–2025Classification
Gross volumeUSD 7.97 billionCumulative inflows and outflows; no net loss
transactions2.275.270Data collected for analysis, not a full census
Wallet addresses2.052Attribution basis of the dataset
Host exchanges39Exchanges used as host according to Crystal
Host A concentration87.4 % (approximately $6.97 billion)Strong concentration in the dataset; results largely influenced by one host
Historical SUEX caseUSD 1.86 billion separatelyExcluded from Crystal's total sum

Figures and methodology: Crystal Intelligence, August 2026, pp. 9–16, 23, 30. [1]

The distribution over the years shows why, in addition to volume, the number of transactions must also be considered: Crystal reports a volume peak of USD 2.64 billion and 236,558 transactions for 2021; in contrast, 1,090,185 transactions with USD 941 million were recorded in 2025. The calculated average amount per transaction thus fell from around USD 11,200 to around USD 860. For monitoring systems, therefore, a sole focus on large amounts may be insufficient. [1]

VOLUMETRANSACTIONSØ PER TRANSACTION 2.64 billion.941 million. 236.5581.090.185 ≈ 11,200≈ 860 20212025 20212025 20212025 TOKEN DISTRIBUTION OF VOLUME BTC 39.2 %USDT 25.9 %ETH 17.3 %Another 17.6 %
Figure 2: More transactions, smaller amounts. Volume, number of transactions and average amount in 2021 and 2025, as well as token distribution of the volume. Data: Crystal Intelligence, August 2026 [1]; own illustration.

Crystal allocates approximately 39.2 % of the volume to BTC, 25.9 % to USDT, and 17.3 % to ETH; the remaining 17.6 % are distributed among other assets. Token. This token distribution may indicate different business models and transfer costs, but says nothing about the legality of an individual transfer. [1]

03 Critical source check and limitations

The Crystal figures are based on a proprietary attribution database. Independent replication of the 2,052 addresses, the complete entity list, and all transfers is not possible without the underlying address and transaction data. Therefore, the research presented here confirms the consistency of key, publicly verifiable regulatory and sanction statements, not the completeness of the proprietary dataset.

Light beam penetrates several panes of glass – a view behind hidden levels
Publication and citation information

The Crystal Report is identified as a third-party source, including its title, publication month, and page references. No original graphics or extensive passages are taken from it.

Checkpoint 1 – Gross Count
According to Crystal, absolute inflows and outflows to attributed addresses are summed. This can lead to double-counting of economically identical funds in chains or repeated transfers. The result is neither an estimate of criminal proceeds nor of the actual net economic volume. [1]
Checkpoint 2 – Counting and allocation limits
The report identifies 17 entities associated with Iran, while the visible identifiers NS-04 to NS-19 comprise only 16 codes; the annex refers to one further entity that is not fully identified individually. Furthermore, the host identifiers remain anonymized. These points should be treated as transparency limits and not as independently verified facts. [1]
Checkpoint 3 – Jurisdiction and Sanctions
A geographical classification as being in Iran alone does not permit a blanket statement that every person or transaction is prohibited worldwide. Specific legal consequences depend, among other things, on the individuals involved, the assets, applicable law, any US connection, exceptions, and the status of any listed entity. Therefore, the broad wording of the original report is not adopted here.
Checkpoint 4 – Behavioral Signals
Sweeps, pooled wallets, and small residual balances are also common in legitimate custody, payment, or treasury systems. They warrant an audit, but do not, in themselves, constitute proof of a crime.

04 Regulatory development and independent reconciliation

4.1 FATF: International Minimum Standards

The FATF published a report on offshore VASPs on March 11, 2026, and its seventh Targeted Update on virtual assets on July 16, 2026. The offshore report specifically describes unlicensed offshore service providers that use accounts with licensed VASPs as purported retail customers; this corresponds to the pattern of undisclosed hosting. In the Targeted Update, 91 of the 109 jurisdictions surveyed (83 %) reported statutory implementation of the Travel Rule (paragraph 24). Of these, 55 of the 91 jurisdictions (60 %) had not yet reported any findings, orders, or other supervisory or enforcement actions specifically related to the Travel Rule (paragraph 25). This information does not represent the total VASP supervision. The FATF self-reports are not an independent impact assessment. [2, 3]

4.2 European Union: MiCAR, Money Laundering Prevention, Travel Rule

Since December 30, 2024, the licensing and supervisory requirements of Title V MiCAR (Regulation (EU) 2023/1114) have applied to CASPs. [7] This establishes a defined regulatory framework but does not automatically prevent undisclosed third-party transactions from running on external infrastructure. The EBA Risk Factors Guidelines require a risk-based approach to customers, products, distribution channels, and geography; they also address relationships between financial institutions and crypto service providers. [4]

The Transfer of Funds Regulation (EU) 2023/1113 and the EBA Travel Rule Guidelines, which have been in force since 30 December 2024, govern accompanying information on senders and recipients as well as the handling of missing and incomplete information. In the case of nested services, the additional question remains whether the formally submitted data set accurately reflects the actual intermediary role. [5, 6]

The maximum period under Article 143(3) MiCAR ended EU-wide on 1 July 2026, unless Member States provided for shorter transitional periods. For the companies specified in Section 50(1) of the German Banking Act (KMAG), the continued validity of their previous authorization under Section 50(2)(3) KMAG ended no later than 31 December 2025; it could also expire earlier under No. 1 or 2. Section 50 KMAG contains various scenarios, particularly for activities that were previously exempt from authorization. Therefore, this period cannot be applied across the board to every provider. The business model, the relevant authorization requirement, and the individual authorization situation remain decisive. [8, 11]

4.3 Sanctions: the documented SUEX case

OFAC sanctioned SUEX OTC, SRO on September 21, 2021. The US Treasury Department stated that more than 40 % transactions in its known transaction history were associated with illegal actors and involved at least eight ransomware variants. This is an independently verified example of sanction risk for intermediary crypto service providers. The additional $1.86 billion nested volume reported by Crystal for SUEX, however, is Crystal's own analysis data. [1, 9, 10]

05 Our own forensic typology: Identification without hasty attribution

The following testing model was structured for practical case work. It distinguishes between technical probability, business identity, and reliable factual findings.

signalPossible explanationRequired cross-check
Automated SweepHost-based deposit accounts or regular treasuryTime series, multiple independent deposit transactions, cluster assignment
Many payers, one target clusterBroker/payment pool account or customer aggregationTransaction purpose, deposit instructions, off-chain receipts
Hot wallet withdrawalCustody by the stock exchangeBank statements or stock market information relating to the initiating party
Internal ID / UID / Pay-IDUse of intra-exchange transfersAuthenticity of the payment instruction and platform assignment
Several host exchangesRedundancy, liquidity or concealmentSeparate records for each business relationship
Missing license informationInformation deficit or actual permit gapRegister query with timestamp and legal entity comparison

For Bitcoin, common-input heuristics are only reliable when CoinJoin and UTXO exceptions are taken into account. On account-based chains, sweep behavior and gas funding can provide clues, but smart contracts and exchange-internal entries complicate ownership attributions. Cluster labels from external analytics providers are hypotheses whose reliability depends on the source and recency.

06 Practical investigation workflow

  1. 1Documentation: Capture original platform URLs, app screenshots, chat history, payment instructions and timestamps in an evidentiary manner, including hash values of the backed-up files.
  2. 2On-chain mapping: Determine the exact chain, transaction hashes, token contract, sender/receiver address, and block time.
  3. 3Attribution control: Check host clusters; document the source and version of each mapping.
  4. 4Nested hypothesis: Check if the customer interface uses wallets or IDs of a host and if deposits regularly go into host clusters.
  5. 5Independent confirmation: repeated technical observation, reliable OSINT-Proof of legally conducted test interaction; legal clearance prior to test payments.
  6. 6Counter-hypotheses: Actively review and, where possible, exclude normal custody, white-label providers, payment service providers, brokers and internal exchange transfers.
  7. 7Requests for information and security: Address messages separately to the host and nested operators, insofar as legally and practically possible.
  8. 8Evaluation: The security of the host assignment, the security of the operator assignment, and the identity of the end customer must each be shown separately.

07 Case scenarios and investigative benefits

7.1 Fraud case involving a deposit address of a major stock exchange

If a purported investment portal uses a deposit address belonging to a well-known stock exchange, this does not necessarily mean that the fraudulent platform is identical to that exchange. It is conceivable that the operators have a customer account with the host or that an intermediary service provider is involved. Relevant for investigation are the period during which the deposit address was clearly linked to an account, the account/sub-account assignment, and the subsequent transfer of funds. Without information from the host, the beneficial owner often remains unknown.

7.2 OTC and Cash Desk Model

Cash-based or P2P-based exchanges can concentrate many payments through a few host accounts. What's striking is not so much the existence of an exchange connection, but rather the combination of unclear end-customer KYC, unusual volumes, a lack of corporate identity, and inconsistent proof of origin.

7.3 Intermediaries Exposed to Sanctions

Current list and country checks, control relationships, and specific legal jurisdiction are crucial. A technical host match triggers a more in-depth review but does not replace a legal assessment under sanctions law.

08 Risk assessment for obligated parties

riskTest questionControl measure
AttributionIs the visible host actually the customer provider?Entity-level mapping and label origin
KYC/KYBWho knows and verifies the end customer?Contractual disclosure of third-party business activities
SanctionsWho initiates and controls the order?List matching, geography and ownership/control analysis
regulationIs the activity in the target market covered by a permit?CASP/VASP register, period, legal form
documentationIs the finding reproducible?Evidence chain, hashes, version archive

09 Recommendations with implementation priority

For stock exchanges and payment service providers

  • Check business accounts and high-volume private accounts for actual third-party business activity.
  • Contractually enshrine nested service disclosure with details of sub-customers, jurisdictions and other hosts.
  • Do not limit behavior-based rules to transaction amount; also monitor sweep times, address aggregation, and many small amounts.
  • Always validate matches related to sanctions or high-risk jurisdictions through human expert review.

For investigative authorities and forensic experts

  • „Stock exchange cluster reached“ and „Operator identified“ are listed as two different result levels.
  • Secure account and sub-account information promptly on the host; blockchain alone does not represent internal ledgers.
  • Each statement is accompanied by transaction/address documentation and confidence level.
  • Archive vendor labels and hit lists at the time of analysis; later changes are possible.

For supervisors and credit institutions

  • Intermediary relationships in CASP business relationships should be explicitly considered in risk analyses.
  • Check the origin of end-customer data and escalation processes, even for white-label and API business models.
  • Operationalize the exchange of information between the supervisory authority, the FIU and market participants in a legally compliant manner.

10 Confidence and evidence standard of Finanz Forensik

Levelminimum basisPermissible wording
A – occupiedOriginal receipt and independent confirmation„"It has been proven..."“
B – strongly supportedSeveral consistent on/off-chain indicators„"With a high probability..."“
C – plausible hypothesisIndividual suitable behavioral patterns„There are indications…“
D – unconfirmedPlatform claim only, screenshot or single label„"Not verified..."“

This matrix is a proposed internal audit standard, not a legal classification. Technical proof of a host connection, criminal liability, and beneficial ownership must be distinguished from one another.

Conclusion

Nested services are not a fringe phenomenon in blockchain forensics, but rather a structural limitation of purely address-based interpretation. The critical risk arises where a regulated infrastructure is interpreted as a trust signal, even though the actual customer contact is handled by a less transparent intermediary. Consistently separating the host, intermediary, and end customer can significantly improve the quality of investigations, compliance decisions, and sanctions checks.

The white paper does not name any additional, independently identified perpetrators, hosts, or transactions. Its unique research contribution lies in the primary source comparison, the critical interpretation of a proprietary data basis, and the development of a practically verifiable investigative framework.

Methodology and references

Research date: October 15, 2026. The original study was analyzed for content; publicly available primary sources from regulators and authorities were checked separately. All figures from the proprietary analysis are explicitly attributed to Crystal Intelligence. Recommendations made by us are to be understood as expert conclusions. No independent on-chain sample was recalculated, and no access to Crystal raw data is claimed.

  1. Crystal Intelligence (August 2026): Nested Services – The $8 billion compliance blindspot. PDF version, 31 pages. Especially pp. 9–16, 19–25, 27–30.
  2. FATF (07/16/2026): Seventh Targeted Update on Implementation of the FATF Standards on Virtual Assets/VASPs, in particular paragraphs 24–25 and Fig. 1.10. fatf-gafi.org
  3. FATF (03/11/2026): Understanding and Mitigating the Risks of Offshore Virtual Asset Service Providers. fatf-gafi.org
  4. European Banking Authority (01/16/2024): EBA issues guidance to crypto-asset service providers to effectively manage their exposure to ML/TF risks. eba.europa.eu
  5. Regulation (EU) 2023/1113 (Transfer of Funds Regulation). eur-lex.europa.eu
  6. EBA (2024): Guidelines on information requirements in relation to transfers of funds and certain crypto-assets transfers under Regulation (EU) 2023/1113 (application from December 30, 2024). eba.europa.eu
  7. BaFin (January 22, 2025): Crypto asset service providers: What simplifications and challenges now exist. bafin.de
  8. Crypto Markets Supervision Act (KMAG), Section 50, in particular paragraphs 1–4 (official legal text). gesetze-im-internet.de
  9. OFAC (09/21/2021): Publication of Updated Ransomware Advisory; Cyber-related Designation (SUEX). ofac.treasury.gov
  10. US Department of the Treasury (09/21/2021): Treasury Takes Robust Actions to Counter Ransomware. home.treasury.gov
  11. ESMA (July 4, 2024): Q&A 2220 – Entities not authorized as CASPs by the end of the transition period. esma.europa.eu

Publication notice
This publication is for informational purposes only. It does not replace a case-specific blockchain analysis or legal, regulatory, or sanctions-related advice. All statements regarding specific market participants are subject to the stated cut-off date and the respective sources.

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David Lüdtke

Managing Director · OSINT Analyst & Crypto Forensic Expert · Finanz Forensik GmbH

Court-admissible crypto transaction analysis, OSINT-based asset investigation, and expert reports for defense attorneys, insolvency administrators, and companies. Certified Crystal Expert (CECF, CEEI, CEUI). Finanz Forensik Supports law firms, companies, investigative bodies and insolvency administrators — focus areas: Blockchain forensics, wallet analysis, court-admissible documentation, OSINT.

Contact: postfach@finanz-forensik.de · +49 6057 9189145 · finanz-forensik.de

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