Introduction: Beware of the Traps Behind Trading Convenience

In the world of cryptocurrencies, security should always be the top priority. When buying and selling digital currencies like Bitcoin or Ethereum, we must rely on reputable and securely fortified trading platforms. However, to ensure user funds' safety, these platforms often require users to complete cumbersome identity verification and anti-money laundering processes. Some users, lacking patience, turn to "real-time trading platforms" with loose rules or even no identity checks.


Among these platforms, there are legitimate decentralized trading platforms, but also nested trading platforms riddled with security risks. These nested platforms appear to offer a fast and convenient trading method but may involve the laundering of stolen funds, putting users' financial security at risk. Therefore, understanding the concept, operation mechanism, and how to identify nested trading platforms is crucial for every cryptocurrency investor.

Nested: The New Garb of Financial Services

The term nested, in the realm of financial services, describes a collaborative model between financial institutions. In simple terms, it involves one financial provider setting up an account within another institution to offer its services to clients through that account. Under this model, the account holder becomes a bridge between the two entities.


For instance, if a bank is unable to directly transfer funds to an Australian bank account, it might utilize another bank that can provide such a service. This bank would accomplish the client's transfer request through a nested account within the collaborating bank.


This nested relationship demands rigorous scrutiny of the partnering bank by the agent bank. Since under this setup, the agent bank is essentially serving a customer it knows little about, relying solely on trust in the nested account holder. This trust forms the bedrock of nested services but also harbors risks.

Decoding Nested Cryptocurrency Trading Platforms

Nested cryptocurrency trading platforms, a unique trading model, operate in a straightforward manner. Individuals or entities first register an account on a regulated trading platform and then use this account to provide cryptocurrency buying and selling services through self-built nested accounts to third parties.


These platforms are often referred to as "instant trading platforms" and are characterized by having accounts on multiple trading platforms at the same time. They come in various forms, with some requiring users to provide identification documents, while many require virtually no identity verification. This loose regulatory environment attracts numerous wrongdoers, including fraudsters, scammers, and extortionists.


Worse still, some nested trading platforms support face-to-face cash transactions for cryptocurrencies, further blurring the line between legality and illegality. This method of trading undoubtedly increases regulatory challenges and poses potential risks to users.

Risks of Nested Trades

Enhanced Money Laundering Risk

In traditional finance, nested trades are a major tool for money laundering. They make it difficult for correspondent banks to identify the true identity of the actual trading party, which may lead to individuals or countries being sanctioned. As regulations in the cryptocurrency industry are still being developed, nested trading platforms have quietly opened accounts on various large cryptocurrency trading platforms, making money laundering more concealed.

Increased Compliance Risk

If the depository bank fails to conduct sufficient due diligence on the correspondent bank, it may inadvertently involve itself in illegal activities such as avoiding sanctions or money laundering. In the cryptocurrency field, this risk is further amplified due to relatively loose regulation.

Account Anonymity

Nested trading platforms take advantage of the anonymity of cryptocurrencies to easily open accounts between different trading platforms, increasing the difficulty of tracing the source of transactions, making it more difficult to regulate illicit fund flows.


Legal Sanctions Risk: As regulatory policies become more sophisticated, nested trading platforms and their users may face legal repercussions. Once blacklisted, not only personal accounts will be affected, but the entire trading platform may also suffer significant damage.

Hidden Dangers of Nested Platforms

User Fund Security in Doubt

The risks brought by nested cryptocurrency trading platforms are far beyond imagination. Firstly, compared to strictly regulated trading platforms, nested platforms provide weaker security for user deposits. Once the platform is hacked or internal issues arise, users' funds may suffer significant losses.

Trapped in Illicit Activities Unintentionally

When using nested platforms, users may unintentionally become involved in funding criminal and terrorist activities. This is because nested platforms may be used as tools for illegal activities such as money laundering.

Regulatory Risks Cannot Be Ignored

Regulatory authorities have the power to shut down such problematic trading platforms. In this case, users may lose their encrypted currencies or other assets stored on the platform.

Shadow of Legal Responsibility

If users knowingly cooperate with trading platforms involved in illegal activities, they will face legal pursuit from law enforcement agencies. This undoubtedly imposes heavy legal responsibilities on users.

Beware of Stealthy Traps

To avoid these risks, the best approach is to stay completely away from nested cryptocurrency trading platforms. These platforms are usually well-hidden and challenging to identify. However, by following proper guiding principles, users can greatly protect their safety.

The Fundamental Difference Between Nested and Decentralized Platforms

While nested trading platforms may appear similar to decentralized ones, they are fundamentally different. Decentralized platforms require no identity verification, emphasizing anonymity, with transactions occurring directly between users through smart contracts. They may even use liquidity pools, keeping the platform itself from touching user assets.


On the other hand, nested trading platforms, while having loose or no identity verification processes, directly manage users' cryptocurrencies. They often utilize the facilities of other trading platforms for trade processing, meaning that users' funds are actually under the control and supervision of the nested platform.

Transfer of Control Over Funds

On a decentralized platform, users maintain full control over their funds. In contrast, on nested platforms, control over user funds is transferred to the platform. This difference exposes nested platform users to higher risks, as any issues with the platform threaten the security of their assets.

Transparency and Trust

Decentralized trading platforms provide transparent trading processes through smart contracts, allowing users to verify transaction details. Nested platforms lack this transparency, requiring users to trust the platform to handle their funds properly, which can be difficult to guarantee in many cases.

Suex OTC Trading Platform Event

On September 21, 2021, the Office of Foreign Assets Control (OFAC) imposed severe sanctions on the Suex cryptocurrency trading platform. This Czech-registered and Russian-operated platform gained notoriety for its nested trading services. Suex provided over-the-counter (OTC) services with minimal identity verification to customers through major platforms like LBank, even supporting face-to-face cash transactions.

Suspected Money Laundering

Investigations by Chainalysis revealed that Suex was involved in money laundering activities related to multiple ransomware and hacking attacks. This behavior drew close scrutiny from regulatory agencies. In response to OFAC's sanctions, LBank proactively froze several accounts associated with Suex.

Blacklisting of Multiple Wallets

The OFAC blacklisted nearly 30 different types of wallets, including popular Bitcoin, Tether, and Ethereum wallets. This move demonstrated the regulators' determination to combat nested trading platforms and associated illicit activities.

Ripple Effect

Crypto bank Chatex, which conducted business with Suex, also faced OFAC sanctions due to alleged connections with Suex. As a result, individuals who had transacted with Suex now face legal risks. Following the announcement of the sanctions decision, Chatex shut down its website, highlighting the significant impact of regulatory measures on nested trading platforms.

How to Identify Nested Trading Platforms?

Nested trading platforms often hide their true nature, but by looking out for the following signs, we can identify them and protect our personal and financial safety:

Lack of Identity Verification

Legitimate trading platforms conduct strict identity verification and anti-money laundering checks on users. If a platform has an extremely low barrier to entry or even no identity verification required, this should raise red flags. Unlimited real-time registration is often a hallmark of nested platforms.

Lack of Transparency in Trading Location

If the user interface does not clearly display where the trades are taking place, this could mean that the platform is intentionally hiding information, which is likely a sign of a nested trading platform.

Concealed Trading Methods

Nested trading platforms will not explicitly state how they facilitate trades. Legitimate platforms will make it clear that all trades are conducted through their own platform, rather than through nested accounts.

Multiple Fee Options

If a platform offers multiple fee options for users to choose from, this suggests that the platform may be operating through nested accounts across multiple trading platforms.

Blockchain Tracing

If you have doubts about your trading platform, you can track the flow of cryptocurrencies using a blockchain explorer. If you find that the path of funds involves wallets from other trading platforms, this may be clear evidence of nested trading.

Conclusion

In the world of digital currencies, the existence of nested trading platforms reminds us that security and convenience are often two sides of the same coin. As we have discussed, while these platforms offer users trading conveniences in some cases, the underlying risks should not be overlooked. From money laundering to increased legal liabilities, users must have a deep understanding and vigilance about the mechanisms behind nested platforms.


As regulatory agencies increasingly tighten their supervision over the cryptocurrency market, stricter regulations are expected to emerge in the future targeting the operations of these platforms. Therefore, looking ahead, investors and users need to be more cautious, choosing reputable trading platforms, and keeping an eye on industry developments to ensure the safety of their funds and the protection of their legitimate rights and interests.