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Peel Chains

A peel chain is a pattern where a large UTXO is repeatedly spent, peeling off small payments and returning the remainder as change. This creates a traceable chain of decreasing outputs that chain analysts use to track funds across many transactions.

How Peel Chains Work

Imagine you have a single UTXO worth 1 BTC. You want to make several payments over time. Each time you spend:

  1. You use the large UTXO as input
  2. You create a small payment output to the recipient
  3. You create a larger change output back to yourself
  4. The change output becomes the input for the next transaction

This creates a linear chain:

1.0 BTC → 0.1 BTC (payment) + 0.89 BTC (change)
                                    ↓
0.89 BTC → 0.05 BTC (payment) + 0.83 BTC (change)
                                    ↓
0.83 BTC → 0.2 BTC (payment) + 0.62 BTC (change)
                                    ↓
... and so on

Why Peel Chains Are Dangerous

At each hop, the smaller output is typically the payment, making the entire payment history trivially traceable by following the chain. An adversary identifying a peel chain can follow the entire sequence of payments with high confidence.

This pattern is common in wallets that make many sequential payments without consolidation or coin control.

How Peel Chains Are Detected

Chain analysis tools detect peel chains by looking for:

  • Linear chain patterns where 1-input, 2-output transactions are chained together
  • One output feeds the next transaction as its sole input
  • At each hop, the smaller output is the payment, the larger is change

The engine checks 1 hop backward and 1 hop forward (up to 3 consecutive hops).

How to Defend Against Peel Chain Detection

Break the Chain Pattern

  • Use CoinJoin between payments
  • Vary transaction structure (use multi-output batch payments)
  • Change coin selection strategies

Use Coin Control

Manually select which UTXOs to spend rather than letting your wallet automatically pick the largest one. This breaks the predictable pattern.

Consolidate Through CoinJoin

Instead of creating a peel chain, consolidate your UTXOs through a CoinJoin first. This breaks the link between the original large UTXO and subsequent payments.