Regulators Close in on Stablecoins Amid 2020 Growth

London, September 22nd – The stablecoin market has been seeing exponential growth in 2020 – leading it to once again coming into the crosshairs of regulators.

For the first time, in June of this year, the amount of value transferred using stablecoins (crypto assets pegged 1-1 to another asset, typically the USD) exceeded that of BTC. The same month saw the Financial Action Task Force (FATF) release a report on ‘So-called Stablecoins’.

“Importantly, central developers and governance bodies of so-called stablecoins will have AML/CFT obligations under the revised FATF Standards, where they are carrying out the activities of a financial institution or VASP (virtual asset service provider),” reads the report.

These obligations are a pain point for regulators as 57% of FATF approved Virtual Asset Service Providers (VASPs) still have weak, porous anti-money laundering measures. But there are solutions. Coinfirm’s FATF-compliant AML Platform strengthens VASPs’ AML and KYC processes to the required regulatory standard.

Coinfirm’s AML Platform C-Score Analysis of a High Risk USDC Address

According to Coinfirm’s data, the criminal activity most inclined to utilize stablecoins are scams, an example shown above from a Coinfirm Enhanced Report based on the firm’s 270+ risk indicators.

“If stablecoins were to become widespread, it could potentially lead to new risks regarding money laundering and terrorist financing,” FATF President Xiangmin Liu noted in 2019. “It is our job to ensure the new risks in connection with stablecoins will be adequately addressed.”

But not every jurisdiction has been as agile. At her first press conference as head of the European Central Bank (ECB) last year, Christine Lagarde outlined her plan to put the ECB “ahead of the curve” in digital currency legislation.

However, Lagarde recently conceded that “Europe has fallen behind in this competition” as a consortium of European ministers are raising concerns over the space.

Last Monday, a joint statement on stablecoins was released by the ministers of finance for Germany, France, Italy, Spain and the Netherlands suggesting EU legislation had not been enough to “adequately deal with specific issues that asset-backed crypto-assets may give rise to in terms of AML/ CFT and fair competition”.

Whilst at the beginning of this month, Governor of the BoE Andrew Bailey, also voiced concerns that stablecoin issuers “need to offer coin holders a robust claim, with supporting mechanisms and protections”.

With more than 200 stablecoins in circulation, they are typically used for paying ‘gas’ fees, lockups for ‘yield farming’ and enabling speculators in volatile cryptocurrencies to go in and out of their markets without incurring fees associated with trading back into fiat currencies.

Since the start of this year, the market cap of the stablecoins DAI, Binance USD and USDC have grown by 970%, 800% and 250% respectively. The largest, Tether – growing by 258% from $4.1 Billion in January to $14.7 Billion today – just printed 5 Billion USDT in the last two weeks alone.

Share of stablcoin money laundering by the foremost coins used

As to be expected from its dominant volume and market cap position, USDT (Tether) is most used by nefarious actors, in 94.6% of stablecoin-related money laundering cases, according to Coinfirm. Similarities can be seen in fiat markets in that between $400 Billion to $1 Trillion are laundered with United States Dollars every year – accounting for half of all fiat money laundering activities.

Coinfirm’s analysis additionally demonstrates how despite USDT taking the biscuit for its share of stablecoin’s money laundering market share – the total number of nefarious transactions on USDT’s chain is small at just 0.14%.

DAI is a DeFi success story. The stablecoin’s quickly growing market cap is particularly a reflection of this year’s rapid expansion of DeFi. DAI is viewed as the most ‘decentralized’ stablecoin owing to it being used mostly on DeFi exchanges – and due to the inherent DeFi nature of the DAI chain itself. 

Large amounts of cryptocurrencies are being ‘locked in’ to DeFi platforms in 2020 attracted by high yielding returns. But because DeFi protocols are created to be decentralized and permissionless – there are no KYC, AML processes or any current regulatory oversight as full decentralized DEXs may not fall under the Travel Rule according to a report co-written by Crypto.com. 

Therefore, DeFi and the stablecoins staked could rapidly become a soft target for money launderers. But Coinfirm’s systems are able to democratize AML processes specifically for DeFi due to the company’s enhanced RegTech ecosystem of products.

Compliance risk in this space will become a growing concern as stablecoins’ footprint is starting to tread into the wider fintech industry and financial institutions. In May of this year, the Liechtenstein-based Bank Frick began to accept deposits in Coinbase’s USDC and retail broker eToro has recently jumped on the yield farming bandwagon to fuel their UBI initiative ‘GoodDollar’ with DAI.

Bank Frick and eToro are just two examples of the financial system recognizing the benefits of incorporating these assets and their associated uses into their business operations. They are not waiting for CBDCs or Facebook’s Libra. The stablecoin market is becoming too mature to ignore.

But as different jurisdictions play catch-up to regulatory outlines made by the FATF around cryptocurrencies such as stablecoins, any VASP partnering with Coinfirm can expect total compliance and rest easy with the company’s All-in-One Travel Rule solution.


The reader accepts the data referenced within this post is accurate to a certain date. There are no indemnities and the actual data on the platform may change.


About Coinfirm

Coinfirm is a global leader in AML and regulatory technology for blockchain and cryptocurrencies. It offers the industry’s largest blockchain coverage, supporting over 1,400 cryptocurrencies and protocols including Bitcoin, Ethereum, Hyperledger, and many more. Coinfirm’s solutions are used by market leaders globally, ranging from crypto exchanges such as Binance, and protocols like XRP, to major financial institutions like PKO BP. The company’s services also include Reclaim Crypto, as well as Trudatum, a standalone regtech platform that allows any file to be registered, signed, and verified with 100% accuracy. For more information, please visit: https://www.coinfirm.com/

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