PEB Separation and State Migration: Unmasking the New Frontiers of DeFi AML Evasion

Computer Science > Cryptography and Security [Submitted on 27 Mar 2026] PEB Separation and State Migration: Unmasking the New Frontiers of DeFi AML Evasion Yixin Cao, Xianfeng Cheng, Yijie Liu Transfer-based anti-money laundering (AML) systems monitor token flows through transaction-graph abstractions, implicitly assuming that economically meaningful value migration is sufficiently encoded in transfer-layer connectivity. In this paper, we demonstrate that this assumption, the bedrock of current industrial forensics, fundamentally collapses in composable smart-contract ecosystems. We formalize two structural mechanisms that undermine the completeness of transfer-layer attribution. First, we introduce Principal-Execution-Beneficiary (PEB) separation, where intent originators, transaction executors (e.g., MEV searchers), and ultimate beneficiaries are functionally decoupled. Second, we formalize state-mediated value migration, where economic coupling is enforced through invariant-driven contract state transitions (e.g., AMM reserve rebalancing) rather than explicit transfer continuity. Through a real-world case study of role-separated limit order execution and a constructive cross-pool arbitrage model, we prove that these mechanisms render transfer-layer observation neither attribution-complete nor causally closed. We further argue that simply expanding transfer-layer tracing capabilities fails to resolve the underlying attribution ambiguity inherent in structurally decoupled execution. Under modular composition and open participation markets, these mechanisms are structurally generative, implying that heuristic-based flow tracing has reached a formal observational boundary. We advocate for a paradigm shift toward AML based on execution semantics, focusing on the restitution of economic causality from atomic execution logic and state invariants rather than static graph connectivity. Subjects: Cryptography and Security (cs.CR); Trading and Market Microstructure (q-fin.TR) Cite as: arXiv:2603.26290 [cs.CR]   (or arXiv:2603.26290v1 [cs.CR] for this version)   https://doi.org/10.48550/arXiv.2603.26290 Focus to learn more Submission history From: Yixin Cao [view email] [v1] Fri, 27 Mar 2026 10:58:54 UTC (860 KB) Access Paper: HTML (experimental) view license Current browse context: cs.CR < prev   |   next > new | recent | 2026-03 Change to browse by: cs q-fin q-fin.TR References & Citations NASA ADS Google Scholar Semantic Scholar Export BibTeX Citation Bookmark Bibliographic Tools Bibliographic and Citation Tools Bibliographic Explorer Toggle Bibliographic Explorer (What is the Explorer?) Connected Papers Toggle Connected Papers (What is Connected Papers?) Litmaps Toggle Litmaps (What is Litmaps?) scite.ai Toggle scite Smart Citations (What are Smart Citations?) Code, Data, Media Demos Related Papers About arXivLabs Which authors of this paper are endorsers? | Disable MathJax (What is MathJax?)