A new international report warns that as stablecoins become core infrastructure in digital asset markets, their stability and liquidity are also making them increasingly attractive to criminal networks.
Stablecoins have become one of the fastest-growing segments of the cryptocurrency market, with their scale now large enough to attract heightened scrutiny from regulators concerned about illicit finance, according to new research from the Financial Action Task Force (FATF).
A new report examining stablecoins and peer-to-peer crypto transactions warns that the same characteristics driving their adoption across digital finance are also making them increasingly appealing to criminal networks.
According to the report, “stablecoins have grown rapidly in scale, adoption, and functional integration within both the virtual asset ecosystem and, increasingly, the traditional financial system.”
More than 250 stablecoins are currently in circulation, with total market capitalisation exceeding $300bn. Trading activity has also surged, with daily stablecoin volumes surpassing those of Bitcoin. The report notes that stablecoins now account for a significant share of activity across blockchain networks, representing roughly 30% of total on-chain transaction volume.
Most of this activity is concentrated in fiat-backed tokens, particularly those pegged to the US dollar. These centrally issued assets dominate the market and are widely used across multiple blockchain networks.
Criminal networks increasingly turning to stablecoins
Yet the same features driving adoption are also attracting illicit actors.
The report warns that stablecoins are increasingly being used within criminal financial networks, stating that “stablecoins… have become a common component of ML, TF and PF schemes that use virtual assets.”
It adds that “reporting indicates that stablecoins are the most popular virtual asset used in illicit transactions.”
The shift reflects how criminal organisations are adapting to the evolving crypto ecosystem. While bitcoin was historically the dominant asset in illicit transactions, its price volatility makes it less practical for holding or transferring large sums.
Stablecoins, by contrast, offer a more stable medium for moving funds.
The report notes that “some of the characteristics that make stablecoins appealing for legitimate users also attract criminals to misuse stablecoins for money laundering, terrorism financing, sanctions evasion, and proliferation financing.”
Authorities have observed their use across a wide range of criminal activity, including fraud, sanctions evasion, terrorism financing and cyber-enabled crime.
Unhosted wallets create a regulatory blind spot
A central concern identified in the report is the role of peer-to-peer transactions between so-called unhosted wallets, which can occur outside traditional regulatory oversight.
These wallets are controlled directly by users rather than by exchanges or other regulated service providers.
Because anti-money laundering rules typically apply to intermediaries, transfers conducted directly between individuals may fall outside existing compliance frameworks.
The report notes that “P2P transactions via unhosted wallets represent a key vulnerability in the stablecoin ecosystem.”
Such transactions occur “without the involvement of a regulated intermediary… and therefore fall outside AML/CFT obligations, making them inherently of higher risk.”
Although blockchain transactions are publicly recorded, wallet addresses remain pseudonymous. This makes it difficult for authorities to identify individuals involved in suspicious activity without additional intelligence.
Cross-chain transfers complicate investigations
The report also highlights how the technological structure of stablecoins can complicate financial crime investigations.
Stablecoins frequently operate across multiple blockchain networks, enabling funds to move quickly between ecosystems.
While this interoperability supports legitimate cross-border transfers, regulators warn it may also create new opportunities for criminal misuse.
The report notes that “interoperability allows stablecoins to operate across multiple blockchains and jurisdictions… [but] may also increase opportunities for multi-chain flows to be exploited by threat actors.”
Market analysis cited in the report indicates that sanctioned entities and other threat actors are increasingly using cross-chain activity to fragment transaction flows and make tracing funds more difficult.
Regulators weigh stronger oversight of the ecosystem
In response, regulators are examining how anti-money laundering frameworks should evolve to address stablecoin-related risks.
The report calls on jurisdictions to establish clear legal frameworks and impose AML obligations on stablecoin issuers, intermediaries and custodians.
It also recommends enhanced monitoring of transactions involving unhosted wallets and greater use of blockchain analytics tools to track suspicious activity.
The report emphasises that jurisdictions should “establish comprehensive legal frameworks… impose clear AML/CFT obligations on stablecoin issuers, intermediaries, and custodians.”
