Stablecoins Overtake Bitcoin in Illicit Transactions in 2023

Stablecoins are now leading the way in illicit crypto transactions, overtaking Bitcoin as the favored currency for illegal activities.

Chainalysis data revealed a shift in the landscape of illicit crypto transactions, with stablecoins overtaking Bitcoin as the preferred medium for cybercriminals. Stablecoins are now predominantly used for scams and transactions linked to sanctioned entities.

Meanwhile, TrueUSD (TUSD) continues to face challenges in maintaining its dollar peg, with a significant sell-off on Binance and concerns over its reserve transparency. In response, TUSD has upgraded its audit system to reinforce trust. On a more positive note, Tether has grown its Bitcoin holdings by an impressive $380 million, now ranking as the 11th largest Bitcoin holder globally. Despite facing scrutiny over its own use in illicit transactions, Tether remains committed to its diversification strategy and its role in financial inclusion.

Stablecoins Emerge as the New Leaders in Illicit Crypto Transactions

Chainalysis, a blockchain analytics firm, revealed in its latest report that while Bitcoin (BTC) was predominantly used for criminal transactions from 2018 to 2021, stablecoins have now taken the lead when it comes to illicit transaction volume.

This change coincides with the overall growth in stablecoin activities, which include both legal and illegal transactions. Despite this shift, BTC continues to be the primary currency for certain criminal activities, like darknet market sales and ransomware extortion. However, for scams and transactions linked to sanctioned entities, which constitute the largest portion of crypto crime by transaction volume, cybercriminals are increasingly opting for stablecoins.

In 2023, sanctioned entities and jurisdictions accounted for about $14.9 billion in transaction volume, representing 61.5% of all illicit transaction volume measured by Chainalysis. This massive amount is primarily attributed to crypto services sanctioned by the United States Department of the Treasury’s Office of Foreign Assets Control continuing to operate in locations where U.S. sanctions are not enforced.

Another interesting trend in the crypto space is the decline in revenue from crypto hacks and scams. CertiK, a blockchain security firm, reported a more than 51% decrease in crypto hack revenue in 2023, which is a very positive development in blockchain security. Chainalysis echoed these findings, noting a 54.3% reduction in crypto hack revenue and a 29.2% drop in crypto scam profits. This could suggest that the crypto industry is finally heading towards a more secure and regulated environment.

TUSD's Efforts to Combat Depegging Issues

In other stablecoin news, TrueUSD (TUSD), a stablecoin associated with Tron founder Justin Sun, is facing some challenges as it continues its struggle to maintain its peg to the US dollar. On Jan. 15, TUSD started to deviate from its dollar peg, falling to $0.984 by 11:15 pm UTC. This depegging incident coincided with a large-scale sell-off on the Binance exchange, where over $339 million in TUSD was sold in just 24 hours, resulting in a net outflow of $42.3 million from the exchange.

The TrueUSD team attributed this de-pegging event to certain "community mining activities" related to Binance Launchpool. These activities reportedly created short-term arbitrage opportunities, leading to the sell-off. There was also speculation among users on social media platforms that the depegging might be linked to TUSD's exclusion from the Manta launch pool initiative by Binance. Furthermore, concerns were raised about TrueUSD's ability to provide real-time proof of its reserves.

In response to these challenges, the TrueUSD team took major steps to reinforce trust in their stablecoin. They announced an upgrade to their fiat reserve audit system, bringing on board Moore Hong Kong, an accounting firm, to provide daily evidence of TUSD’s fiat reserves. This was in addition to the services already provided by their current provider, The Network Firm. The new reports from Moore Hong Kong are expected to include detailed information about the reserve funds held by TrueUSD’s financial partners. Michelle Chu, an executive at MooreHK, emphasized that there will be a collaborative effort with The Network Firm to enhance transparency for TUSD users.

Despite these measures, the price of TUSD continued to face downward pressure. On Jan. 18, the value of the stablecoin dropped further, reaching as low as $0.97, according to data from CoinMarketCap.

Tether Buys More BTC

While TUSD struggles to hold on to the trust of the crypto community, things are going much better for USDT. Tether has attracted a lot of attention by acquiring an additional 8,888 BTC, amounting to $380 million. This transaction, which took place on Dec. 31 of 2023 has significantly increased Tether's Bitcoin holdings to a total of 66,465.20 BTC. According to Dune Analytics, this now makes Tether the 11th largest holder of Bitcoin globally, with their holdings now valued at more than $2.8 billion.

This strategic acquisition aligns with Tether's May 2023 announcement to incorporate BTC into its list of supported assets for USDT. The company previously revealed that 15% of its realized profits from investments would be allocated to buy Bitcoin. This decision was part of Tether's broader strategy to diversify its reserves, which traditionally consisted of government bonds and cash-like assets. As of its Q1 2023 attestation report, Tether already amassed $1.5 billion in BTC reserves.

Tether's CEO, Paolo Ardoino is very confident in Bitcoin, and he believes in its resilience, value storage capacity, and growing adoption. The firm manages its BTC reserves in-house, adhering to the Web3 ethos of “not your keys, not your coins.” Beyond Bitcoin, Tether's portfolio includes $72.6 billion in US government bonds, $3.4 billion in gold, and other cash-like assets.

However, the stablecoin issuer has not been without its challenges. It recently faced some scrutiny after a United Nations report from Jan. 15 claimed that Tether's USDT stablecoin on the Tron blockchain was used by cybercriminals in Asia and Southeast Asia for illegal fund movements.

In response, Tether criticized the report for its negative portrayal, emphasizing the stablecoin's role in financial inclusion in underserved communities. The company also pointed out its cooperation with law enforcement agencies like the US Department of Justice and the FBI, contributing to the freezing of $300 million in funds related to cyber fraud.

Tether's expansion of its Bitcoin holdings marks a significant step in the stablecoin issuer's strategy to diversify and strengthen its reserve assets. Despite regulatory challenges, the company remains committed to leveraging blockchain technology for broader financial inclusion and security.