Stablecoins are increasingly becoming a common payment method, appealing not just to legitimate users but also to criminals keen on evading currency risks while transacting significant amounts. This trend highlights the escalating preference for stablecoins such as Tether’s USDT and Circle Internet’s USDC, both of which are pegged 1:1 to the U.S. dollar. These stablecoins are often viewed as a safer alternative to more volatile cryptocurrencies like Bitcoin, according to James Smith, founder of blockchain analytics company Elliptic. Despite the fact that issuers of these dollar-backed tokens have the capacity to freeze them, their relative stability makes them attractive.
In the past 24 hours, stablecoins traded an astonishing $94 billion, underscoring the necessity for enhanced tracking and due diligence measures in the sector. Elliptic has developed a new toolset aimed at scrutinizing wallets and monitoring asset movements across blockchain networks. Designed with mainstream financial companies in mind, this tool can be utilized by major stablecoin issuers like Tether and Circle, along with their primary distributors and partners.
Smith mentioned the potential for banks to benefit from this burgeoning market, expressing that any prudent financial institution should consider how to engage with stablecoins while adhering to existing and forthcoming regulations. While he refrained from naming the large banks utilizing Elliptic’s Stablecoin Issuer Due Diligence product, he confirmed that several are already on board.
The product is applicable to a wide range of stablecoin issuers, not just the leading participants in the market. Notably, Tether has a circulation of $168 billion worth of tokens, significantly overshadowing USDC, the second-largest stablecoin.
Certain regions, especially China and Southeast Asia, have emerged as hotspots for illicit activity, with USDT on the Tron blockchain gaining notable traction. Founded in 2014 by Justin Sun, Tron hosts over $78 billion in USDT, following Ethereum, which holds about $85 billion.
On the law enforcement front, major stablecoin issuers possess mechanisms to freeze or blacklist specific wallet addresses, thereby obstructing the transfer or redemption of held stablecoins. This feature is integral to smart contracts, which also allow for the revocation of previously approved transactions and the ability to seize or burn tokens. Recently, the T3 Financial Crime Unit—a collaborative effort involving Tron, Tether, and TRM Labs—reported freezing over $250 million in criminal assets since its establishment less than a year ago.
Elliptic’s observations reveal that illicit operators often convert their assets to non-freezable stablecoins or other native assets in the early stages of money laundering to avoid detection.
Differentiating itself from other blockchain analytics tools, Elliptic’s Issuer Due Diligence app offers customized dashboards rather than traditional investigation frameworks. It features dynamic historical insights and is designed to seamlessly integrate into the workflows of financial institutions, ensuring both flexibility and privacy in monitoring stablecoin activities.
