January 2024

Stablecoin Report:

USDT and USDC Illicit

Activity Study

amlbot.com
 2

Table of Contents
Executive Summary 3
Introductio 5
Background on the rise of stablecoins, specifically USDT
and USDC
Importance of understanding the illicit use of
cryptocurrencies in general and stablecoins in particular
Methodology 8
USDT Overview 12
USDC Overview 14
Illicit Activities Associated with USDT 16
How Tether Prevents Money Laundering - Freezing
Mechanis
Case Study
Illicit Activities Associated with USDC 21
How Circle Prevents Money Laundering - Freezing
Mechanis
Case Study
Comparative Analysis 25
Volume of transactions linked to illicit activities for both USDT and USD
Interpretation of Results
Regulatory Landscap 32
Current regulations targeting money laundering with cryptocurrencies
Effectiveness of these regulations
Recommendations for strengthening regulatory oversight
Conclusion 36
References 38
Executive

Summary
 4

Executive Summary 

The report is focused on comparing the two most popular stablecoins

by market share - USDT issued by Tether Limited Inc. and USDC
issued by Circle Internet Financial, LLC - in terms of the magnitude of
illicit activity associated with both stablecoins. This is done utilizing
blockchain analytics in which transaction activity is examined in
cluster interactions among users of those stablecoins on specified
blockchains where they’re present.
Introduction
 6

Introduction 

Background on the rise of stablecoins, specifically USDT and USDC

What a stablecoin is and what USDT and USDC are? Stablecoins are
a form of cryptocurrency pegged to a stable asset, such as the U.S.
dollar. As with other cryptocurrencies, companies use smart
contracts to create, manage, and redeem stablecoins. However, their
values remain relatively steady, whereas the value of crypto tokens
such as Bitcoin can fluctuate widely. 

USDT and USDC are two of the most popular stablecoins on the
market. USDT was launched by the company Tether Limited Inc. in
2014, and it’s pegged to the U.S. dollar at a 1:1 value. Tether states
that they have a high level of transparency, as the company publishes
daily reports about its reserves and the number of outstanding USDT
tokens. USDT is available on many of the largest crypto exchanges. 

USD Coin, better known as USDC, is another stablecoin pegged to

the U.S. dollar. It was created by Circle Internet Financial. As such, it
can be stored in a crypto wallet or transferred to a blockchain such
as Ethereum. Unlike USDT, which is only partially collateralized, USDC
is fully collateralized. This means that every USDC token is backed by
the same number of U.S. dollars in reserve. 

Why have stablecoins become popular among crypto users?

Stablecoins are a type of cryptocurrency designed to maintain a
stable value, typically pegged to a fiat currency such as the U.S.
dollar. They aim to eliminate the volatility seen in other
cryptocurrencies, such as Bitcoin or Ethereum, making them suitable
for everyday transactions. Stablecoins are often backed by real-world
assets, such as currencies, commodities, or securities, ensuring their
value remains stable over time. There are several reasons stablecoins
are popular, including speed, efficiency, cost-effectiveness, security,
and privacy.
 7

Importance of understanding the illicit use of cryptocurrencies in

general and stablecoins in particular 

Stablecoins are used not only by regular users but also by criminals.
Criminals exploit stablecoins by taking stolen funds and moving them
through exchanges with a lack of KYC and AML rules. In these
exchanges, they can convert stolen funds into stablecoins.
Subsequently, they proceed to exchange stablecoins for traditional
fiat currency, effectively "cleaning" the money in the process. This
process allows criminals to obfuscate the origins of their funds and
make them appear legitimate.
Methodology
 9

Methodology 

Both USDT and USDC are present on multiple blockchains as tokens,

including ERC20, TRC20, BEP20, etc. However, the number of
transfers and the transaction volume vary drastically depending on
the blockchain. In addition, not all blockchains have sufficient
clustering data, which limits analysis of illegal activity on the selected
stablecoins. Due to that, it makes sense to analyze the blockchains
for USDT & USDC, which are the most active in transferred volume
and number of transactions. After performing on-chain data analysis
of USDT & USDC activity on various blockchains using Flipside
(Source), ETH & TRX blockchains were selected. It is worth noting
USDC on Tron blockchain has comparatively low activity compared to
USDT & USDC on Ethereum, as well as USDT on Tron, as the graphs
show below. Due to that, USDC TRC 20 was not analyzed.

Overall stablecoin activity

 10

USDT Activity per Blockhain

USDC Activity per Blockhain

 11

Further, to perform the desired compression analysis of USDT ERC20

& USDT TRC20 vs. USDC ERC20, blockchain analytics tools, such as
AMLBot, were used. Such tools have various clusters attributed with
a risk level - low, medium, and high. For example, cluster Exchange
has a low risk level. In comparison, the cluster Dark Market has a high
risk level. For analysis purposes, several clusters from each risk level
were selected for stablecoins on both blockchains, and the exposure
of those clusters (both direct and indirect) to the other high-risk
clusters was analyzed. In the end, the total high-risk exposure of
such clusters was compared and analyzed in terms of both U.S. dollar
and percentage values.
USDT Overview
 13

Tether (USDT) is a cryptocurrency stablecoin pegged to the U.S.

dollar, and it's fully backed by Tether's reserves. The company behind
Tether, iFinex, also owns the BitFinex crypto exchange. Tether was
initially introduced as RealCoin in July 2014 but later rebranded as
Tether in November 2014. While it initially operated on the Bitcoin
blockchain, Tether has expanded its support to various other
blockchain protocols, including Bitcoin's Omni and Liquid, Ethereum,
TRON, EOS, Algorand, Solana, and Bitcoin Cash. As of January 2023,
Tether stood as the third-largest cryptocurrency in market
capitalization, following Bitcoin (BTC) and Ethereum (ETH). It has held
the distinction of being the most substantial stablecoin with a market
capitalization of close to $68 billion. In 2022, Tether's USDT was a
significant component of the total trading volume in the
cryptocurrency markets, surpassing even Bitcoin by value. Tether's
unique position as a widely used stablecoin makes it a key player in
the crypto ecosystem and financial markets. 

Backing and Issuance: Tether claims each USDT token is backed by

one U.S. dollar held in reserve. The issuance of USDT is supposed to
correspond to the amount of USD held in reserves, which can include
cash, cash equivalents, and sometimes other assets or receivables
from loans made by Tether to third parties. 

Minting Process: When an entity wants to acquire USDT, they send

USD to Tether's bank account. In return, Tether mints or issues an
equivalent amount of USDT to the entity. 

Redemption and Burning: Conversely, if someone wants to convert

their USDT back into USD, they send the USDT to Tether, which then
supposedly destroys (or 'burns') the tokens and sends back USD
from its reserves.

Transparency and Audits: There have been controversies and legal

issues regarding the transparency of Tether's reserves. Periodic
audits and reports are released to show the backing of USDT, but
these have been subject to scrutiny and skepticism.
USDC Overview
 15

USD Coin (USDC) is a fully reserved stablecoin designed to maintain

price parity with the U.S. dollar, ensuring stability in a volatile market.
USDC is a type of stablecoin, which is a digital asset pegged to a fiat
currency, in this case, the U.S. dollar. USDC was created in 2018 by
Boston-based Circle and Coinbase exchange, part of the Centre
Consortium. It promises each USDC in circulation corresponds to one
U.S. dollar reserved, essentially tokenizing the dollar for easy use on
the internet and public blockchains. It exists as an ERC-20 token, the
most widely used standard for blockchain applications, making it
compatible with Ethereum-based decentralized applications (DApps).
However, it's not limited to Ethereum; USDC can function on various
blockchain networks, including Solana, Avalanche, TRON, Algorand,
Stellar, Flow, and Hedera. USDC has become a vital stablecoin in the
market, boasting substantial liquidity and active trading on both
centralized and decentralized exchanges worldwide. 

Backing and Issuance: USDC is issued by regulated financial

institutions. Each USDC is claimed to be backed one-to-one by a U.S.
dollar held in a segregated bank account.

Minting Process: Similar to USDT, when U.S. dollars are deposited

into a bank account managed by Circle (the company behind USDC),
an equivalent amount of USDC is minted and issued to the depositor.

Redemption and Burning: Redemption involves sending USDC to

Circle, which then 'burns' the USDC tokens and transfers USD from
the reserve bank account to the redeemer's bank account. 

Transparency and Audits: USDC is known for higher transparency

compared to USDT. It undergoes regular audits by independent
accounting firms to verify each USDC is indeed backed by a U.S.
dollar, and these reports are made public.
Illicit
Activities
Associated
with USDT
 17

The following table shows an analysis of illicit activities associated

with USDT ERC20 and USDT TRC20 within different selected
clusters.

Ethereum:

Cluster Name Contract address High-risk % High-risk

amount USD

DEX dodo-v1
0xc9f93163c99695c6526b799ebca 0.04% 25 146 047
USDC-USDT 2207fdf7d61ad

DEX uniswap-v3
0x11b815efb8f581194ae79006d24e 0.15% 145 043 667
USDT-WETH 0d814b7697f6

DEX curve  
0xbebc44782c7db0a1a60cb6fe97d0 0.44% 925 483 039
DAI-USDC-USDT b483032ff1c7

DEX uniswap-v3
0x48da0965ab2d2cbf1c17c09cfb5c 0.59% 7 743 335
DAI-USDT be67ad5b1406

DEX curve
0xd51a44d3fae010294c616388b506 0.02% 8 389 948
USDT-WBTC acda1bfaae46

Bridge Stargate
0x38EA452219524Bb87e18dE1C24D 0.75% 40 871 355
3bB59510BD783
Finance

Exchange Binance 0xfBFcAC54E373Aa23e43ADF472E1 1.46% 12 424 944 617

20AB67eFD1459

Exchange Coinbase 0x676AB94E00d548A532c42D9245 0.59% 724 369 883

C7d2b3eF261eb2

High Risk
HotBit 0x274F3c32C90517975e29Dfc209a 0.46% 8 948 285
Exchange 23f315c1e5Fc7

Gambling Yolo 0xe48C9A989438606a79a7560cfba 1.05% 26 302 874

3d34BAfBAC38E

Data as of 01.12.2023
 18

Tron:

Cluster Name Contract address High-risk % High-risk

amount USD

DEX Sunswap
TAQCLN5kbhRUrNDQ3AVmaiXJfchc7 0.55% 252 990
USDC-USDT cEBVW

DEX Sunswap
TW68dBGdy9gtk16BfzmvaCZ9pEti3 0.19% 644 240
USDT-JST KFkk2

DEX Sunswap
TTdeCobmYxhfFBYUZbiQqbZ56zrFk 0.31% 775 980
USDT-SUN SE5DG

Bridge AllBridge TAC21biCBL9agjuUyzd4gZr356zRgJ 1.6% 247 600

q61b

Exchange Binance TXTg9uAB7X52cUMfVYa8Y9b6bRAj 2.55% 33 929 684 095

APQ9vD

High Risk
HotBit TLKA4WF4RXuJhG3gtKpevEUoAitp 5.39% 185 059 642
Exchange mgoNtF

Gambling Yolo TUVYkDqoVnsCvmxcoTG3MYYC1GQ 0.76% 27 670 544

pumFLpb

Data as of 01.12.2023
 19

How Tether Prevents Money Laundering - Freezing Mechanism 

The freezing mechanism allows Tether to restrict the transfer and use
of USDT funds associated with specific addresses. This capability
has been implemented to comply with regulatory standards and
combat potential misuse of the stablecoin for illegal activities. The
decision to modify the policy on December 9, 2023, highlights
Tether's commitment to adhering to regulatory requirements. By
proactively blocking addresses linked to individuals sanctioned by the
Office of Foreign Assets Control (OFAC), Tether aims to prevent its
stablecoin from being used in violation of international sanctions. To
date, over 1200 addresses have been blocked, collectively holding a
total amount of $823 million.
 20

Case study

Police in China's Shanxi Province have uncovered a $54 million Tether

(USDT) money laundering scheme, leading to 21 arrests across

multiple cities. The suspects purchased discounted USDT through

crypto trading services and illegally profited by selling them at

inflated prices via WeChat and money laundering platforms. The

scheme was discovered when abnormal fund flows were noticed in

one account, prompting suspicion of money laundering. Police seized

40 cell phones, over 1 million yuan ($138,000) in USDT, and more

than 200,000 yuan in cash. All 21 suspects have reportedly

confessed to the crime, and the case is under investigation. (Source) 

On December 15, 2023, Tether released a letter stating they had

voluntarily frozen $435 million worth of USDT to assist law

enforcement. These funds were spread across approximately 326

wallets. Tether’s letter also indicated they have onboarded the

Federal Bureau of Investigation (FBI) and the Secret Service onto

their platform so they can more successfully identify and investigate

illicit activity. (Source)

Illicit
Activities
Associated
with USDC
 22

The following table shows an analysis of illicit activities associated

with USDC ERC20 within different selected clusters.

Ethereum:

High-risk

Cluster Name Contract address High-risk %

amount USD

uniswap-v3
0x88e6a0c2ddd26feeb64f039a2c41
DEX 0.02% 271 889 690
USDC-WETH 296fcb3f5640

dodo-v1
0xc9f93163c99695c6526b799ebca
DEX 0.01% 5 698 852
USDC-USDT 2207fdf7d61ad

curve
0xbebc44782c7db0a1a60cb6fe97d0
DEX 0.66% 1 461 343 266
DAI-USDC-USDT b483032ff1c7

uniswap-v3
0x5777d92f208679db4b9778590fa
DEX 0.01% 40 040 151
DAI-USDC 3cab3ac9e2168

uniswap-v3
0x99ac8ca7087fa4a2a1fb63572699
DEX 0.03% 7 576 591
USDC-WBTC 65a2014abc35

0xdf0770dF86a8034b3EFEf0A1Bb3c
Bridge Stargate
0.29% 23 885 734
889B8332FF56
Finance

0x59180Bd4c298F9075E3Eb9BFd95
Exchange Binance 0.15% 507 318 291
5dAc7118A7A9d

0xA0d631A2B28A431dc315475f092
Exchange Coinbase 0.05% 402 759 203
Bbe65a3F09B42

High Risk
0x274F3c32C90517975e29Dfc209a
HotBit 0.05% 94 252
Exchange 23f315c1e5Fc7

0x8789a1c6615790FB317A024De09
Gambling Yolo 0.14% 887
8fEB932558cDF

Data as of 01.12.2023
 23

How Circle Prevents Money Laundering - Freezing Mechanism

Similar to Tether, Circle, the issuer of USDC USD, also possesses the
capability to freeze or suspend accounts. USDC is issued by
regulated financial institutions, and its operations are governed by a
set of guidelines to comply with regulatory requirements.
 24

Case study

The U.S. Treasury Department has imposed sanctions on Tornado

Cash, a crypto mixer, targeting 38 Ethereum-based addresses
holding Ether and USD Coin. Tornado Cash, known for obscuring
blockchain transaction trails, was used by cybercriminals and state-
backed hackers, including North Korea's Lazarus Group, to launder
the proceeds of crypto service hacks, such as the $620 million Ronin
Bridge hack and the $100 million theft from Harmony Bridge. Notably,
Elliptic's analysis revealed over $1.54 billion in criminal proceeds were
laundered through Tornado Cash, and the platform processed more
than $7 billion in crypto assets. These sanctions are significant
because Tornado Cash operates through decentralized smart
contracts, making it challenging to shut down. Circle, behind the
USDC stablecoin, froze approximately $75,000 belonging to Tornado
Cash users and 149 USDC received as donations. (Source)
Comparative
Analysis
 26

Volume of transactions linked to illicit activities for both USDT and

USDC

Based on the overall analysis, USDT seems to have a higher degree

of illicit activity, totaling 3.37%(49 835 488 252 USD) overall,
compared to only 0.14%(4 614 796 641 USD) for USDC. When
comparing risk levels exclusively on Ethereum, the difference is less
extreme, as USDT totals 1.50% versus 0.14% for USDC. However, the
combined results suggest illicit activity, such as money laundering, is
more likely to occur with USDT. 

During analysis of high-risk transactions for USDT on Ethereum and

Tron blockchains, Ethereum reveals a lower absolute high-risk
exposure (2.12 billion USDT) and a smaller percentage of high-risk
transactions (1.5011%) compared to Tron (47.72 billion USDT and
3.5728%, respectively). However, it's crucial to note that Tron
demonstrates a higher overall exposure, totaling 1.34 trillion USDT.

USDT

Blockchain Total High-Risk Exposure Total Exposure % From Total Volume

Ethereum 2 116 665 084 141 004 866 369 1.5011%

Tron 47 718 823 168 1 335 627 502 996 3.5728%

Total 49 835 488 252 3.3749%

Data as of 01.12.2023

In an analysis of high-risk transactions for USDC on the Ethereum

blockchain, data indicates a total high-risk exposure of 4.61 billion
USDC, accounting for a minimal percentage of 0.1383% from the total
volume of 3.34 trillion USDC. This suggests a relatively low level of
risk associated with USDC transactions on the Ethereum blockchain.

USDC

Blockchain Total High-Risk Exposure Total Exposure % From Total Volume

Ethereum 4 614 796 641 3 337 852 732 978 0.1383%

Data as of 01.12.2023
 27

In terms of high-risk transactions for stablecoins on the Ethereum

blockchain. USDC has a total high-risk exposure of 4.61 billion USDC,
representing a minimal 0.1383% of the total volume of 3.34 trillion
USDC. On the other hand, USDT demonstrates a higher total high-
risk exposure at 21.17 billion USDT, accounting for 1.5011% of the total
volume of 1.41 trillion USDT. Collectively, stablecoins on the Ethereum
blockchain exhibit a total high-risk exposure of 25.78 billion USDC,
equivalent to 0.5430% of the overall volume.

ETH

Stablecoin Total High-Risk Exposure Total Exposure % From Total Volume

USDC 4 614 796 641 3 337 852 732 978 0.1383%

USDT 21 166 650 840 1 410 048 663 689 1.5011%

Total 25 781 447 481 0.5430%

Data as of 01.12.2023

Throughout review of stablecoin transactions on the Tron blockchain,

with a specific focus on USDT, data discloses a total high-risk
exposure of 47.72 billion USDT. This constitutes a noteworthy
3.3842% of the total volume of 1.34 trillion USDT. These findings
underscore a significant level of risk associated with USDT
transactions on the Tron blockchain.

TRX

Stablecoin Total High-Risk Exposure Total Exposure % From Total Volume

USDT 47 718 823 168 1 335 627 502 996 3.3842%

Data as of 01.12.2023
 28

In evaluation of stablecoin transactions within decentralized

exchanges (DEX). For USDC, total high-risk exposure amounts to 3.27
billion USDC, representing a minimal percentage of 0.1511% of the
total volume of 2.17 trillion USDC. Meanwhile, USDT demonstrates a
lower total high-risk exposure at 1.82 billion USDT, accounting for
0.4245% of the total volume of 428.26 billion USDT. Collectively,
stablecoin transactions within DEX platforms show a total high-risk
exposure of 5.09 billion USDC, equivalent to 0.1962% of the overall
volume.

DEX

Stablecoin Total High-Risk Exposure Total Exposure % From Total Volume

USDC 3 272 769 325 2 166 655 997 337 0.1511%

USDT 1 817 914 170 428 256 715 360 0.4245%

Total 5 090 683 495 0.1962%

Data as of 01.12.2023
In the context of stablecoin transactions facilitated through a bridge.
USDC has a total high-risk exposure of 42.89 million USDC,
constituting 0.5237% of the total volume of 8.19 billion USDC. On the
other hand, USDT demonstrates a higher total high-risk exposure at
67.85 million USDT, representing 1.2469% of the total volume of 5.44
billion USDT. Cumulatively, stablecoin transactions via the bridge
display a total high-risk exposure of 110.74 million, equivalent to
0.8124% of the overall volume.
 29

BRIDGE

Stablecoin Total High-Risk Exposure Total Exposure % From Total Volume

USDC 42 885 157 8 188 540 097 0.5237%

USDT 67 852 190 5 441 527 945 1.2469%

Total 110 737 347 0.8124%

Data as of 01.12.2023
Considering stablecoin transactions within centralized exchanges
(CEX). USDC has a total high-risk exposure of 1.30 billion USDC,
representing 0.1117% of the total volume of 1.16 trillion USDC. In
contrast, USDT demonstrates a notably higher total high-risk
exposure at 66.68 billion USDT, accounting for 2.8987% of the total
volume of 2.30 trillion USDT. Combined, stablecoin transactions
within CEX platforms exhibit a total high-risk exposure of 67.98
billion, equivalent to 1.9630% of the overall volume.

CEX

Stablecoin Total High-Risk Exposure Total Exposure % From Total Volume

USDC 1 299 015 830 1 162 800 262 654 0.1117%

USDT 66 684 467 187 2 300 472 071 907 2.8987%

Total 67 983 483 017 1.9630%

Data as of 01.12.2023
In examination of stablecoin transactions within the gambling sector.
In this context, USDC has a total high-risk exposure of 1.27 million
USDC, constituting 0.1970% of the total volume of 642.99 million
USDC. Meanwhile, USDT demonstrates a total high-risk exposure of
30.75 million USDT, representing 0.9996% of the total volume of 3.08
billion USDT. Collectively, stablecoin transactions within the gambling
sector exhibit a total high-risk exposure of 30.76 million, equivalent to
0.9994% of the overall volume.
 30

GAMBLING

Stablecoin Total High-Risk Exposure Total Exposure % From Total Volume

USDC 1 267 642 986 0.1970%

USDT 30 754 300 3 076 731 168 0.9996%

Total 30 755 567 0.9994%

Data as of 01.12.2023
In evaluation of stablecoin transactions within high-risk centralized
exchanges (CEX). USDC has a total high-risk exposure of 125,062
USDC, representing 0.0603% of the total volume of 207.29 million
USDC. In contrast, USDT demonstrates a significantly higher total
high-risk exposure at 126.87 million USDT, accounting for 4.7405% of
the total volume of 2.68 billion USDT. Combined, stablecoin
transactions within high-risk CEX platforms exhibit a total high-risk
exposure of 127 million, equivalent to 4.4041% of the overall volume.

HIGH-RISK CEX

Stablecoin Total High-Risk Exposure Total Exposure % From Total Volume

USDC 125 062 207 289 904 0.0603%

USDT 126 865 931 2 676 194 569 4.7405%

Total 126 990 993 4.4041%

Data as of 01.12.2023
 31

Interpretation of Results

As the results show, USDT is a riskier stablecoin compared to USDC.

This should come as no surprise, as USDC’s issuing company, Circle,

is based in the USA, which is deemed more regulated. USDC also

undergoes more frequent audits. The lower degree of illicit activity

with USDC stablecoins is also consistent across centralized and

decentralized exchanges, as well as bridges. The fact that this same

result is repeated to varying degrees underscores that USDC’s lower

degree of illicit activity is inherent to the stablecoin itself. 

When examining illicit activity for USDT, Tron has more than double

the volume compared to Ethereum. This is largely because more

USDT activity occurs on Tron due to its lower transaction

fees.Regardless of the reason, it’s a noteworthy distinction for

stablecoin users.

Lastly, among the analyzed clusters, the high-risk centralized

exchange has the highest volume of illicit activities associated with

analyzed stablecoins. This serves as "confirmation" that its "high-

risk" labelling is appropriate and accurate. Stablecoin users who use

high-risk centralized exchanges should be aware that illicit activity is

significantly more common than on other exchanges and platforms.

Further, if we look at freezing activity, Tether (USDT) has been more

active than USD Coin (USDC). Tether has blocked over 1200

addresses, collectively holding a total amount of $823 million. In

contrast, USD Coin has only blocked 211 addresses on the Ethereum

network, with a total frozen amount of $75 million. (Source) This

suggests Tether has more illicit activity and implemented its freezing

mechanism more extensively compared to USD Coin. It's important to

note the reasons for freezing addresses can vary, and the policies of

Tether and USD Coin may differ. Freezing addresses is typically done

to comply with regulatory requirements, prevent illicit activities, and

ensure the stability and legality of the stablecoin.

Regulatory
Landscape
 33

Current regulations targeting money laundering with

cryptocurrencies

Regulatory bodies around the globe have taken action to prevent

illicit activity related to stablecoins. Many of their policies are based

on the recommendations of the Financial Action Task Force (FATF),

which has closely examined potential risks associated with

stablecoins and other virtual assets. However, most countries have

not yet developed a comprehensive set of regulations specifically for

stablecoins, instead deferring to existing standards that apply to

cryptocurrencies as a whole. (Source) 

Anti-Money Laundering (AML) and Know Your Customer (KYC)

policies are pivotal, and they’re primarily aimed at preventing money

laundering within the cryptocurrency ecosystem. AML measures are

designed to detect and report suspicious activities, thwarting the

illicit flow of funds associated with money laundering and financing

illegal activities. Under the FATF’s guidelines, virtual asset service

providers (VASPs), including stablecoin issuers, must have dedicated

AML compliance officers who oversee their organizations’ transaction

monitoring programs. They’re also responsible for reporting

suspicious activity to the appropriate authorities or regulatory

bodies. 

KYC policies, in turn, mandate that crypto businesses verify identities

of their users, thereby increasing transparency and accountability.

This involves rigorous collection and verification of personal

information, such as identification documents and addresses, to

confirm true identities of individuals. The identifying information

companies collect during their KYC checks makes it easier for

investigators to identify the source of illicit activity if and when it

occurs. In the context of cryptocurrency, AML and KYC serve as

critical tools to safeguard against the use of digital assets for illegal

financial activities, ensuring transactions adhere to legal and

regulatory standards while also countering the pervasive threat of

money laundering within the crypto space. (Source)

 34

Effectiveness of these regulations 

AML and KYC regulations serve as a significant deterrent to criminals

who might consider using cryptocurrencies for illicit purposes. The
prospect of being identified and prosecuted for money laundering,
terrorist financing, or other illegal activities dissuades many from
attempting such actions within the crypto space. Many reputable
cryptocurrency exchanges and service providers have implemented
rigorous AML and KYC procedures to meet regulatory requirements.
This commitment to compliance ensures a substantial portion of
cryptocurrency transactions follows these regulations, making it
increasingly difficult for criminals to exploit the system. Some crypto
firms may not fully grasp the risks associated with non-compliance or
partial compliance with crypto regulations. This lack of understanding
can lead to serious legal, financial, and reputational consequences.
To avoid these repercussions, comprehensive compliance is
essential.
 35

Recommendations for strengthening regulatory oversight

Regulations for stablecoins remain under debate and development.

For example, in the United States, Congress has written several bills

that attempt to address concerns about stablecoins. This includes

the Clarity for Stablecoins Act, which establishes the country’s first

federal regulatory framework for stablecoins. While the bill has not

yet been made law, it’s an important indicator that reflects how

seriously legislators are taking stablecoins as a mainstream form of

currency. (Source) 

MiCA (Markets in Crypto Assets) regulation in the European Union is

widely regarded as one of the most comprehensive frameworks for

the crypto industry. It stands out as a prime example of robust

regulatory standards. MiCA is designed to provide a consistent and

harmonized approach to crypto assets, encompassing rules for

issuance, trading, and custody. This comprehensive framework

places a strong emphasis on investor protection and market integrity,

setting a high bar for responsible and secure crypto market

operations. While the regulatory landscape continues to evolve,

MiCA's approach is widely seen as a positive step toward providing

clarity and stability in the crypto space within the EU. (Source)
Conclusion
 37

Stablecoins are an increasingly popular type of cryptocurrency. They

provide the same benefits as other cryptocurrencies without their
excessive volatility. Two of the most widespread stablecoins, USDT
and USDC, have made inroads in making stablecoins more practical
and accessible for everyday use. However, illicit activity remains a
pressing concern for stablecoin issuers, exchanges, and users alike.
This study analyzed the amount of illicit activity that occurs with
USDT and USDC. The results showed USDC is superior in terms of
risk, as rates of illicit activity were much lower than those for USDT,
totaling 0.14% and 3.37%, respectively. This is a reflection of USDC’s
commitment to safety and security, as well as the fact that USDT is
more widely used. USDT’s rate of illicit activity was higher on Tron
than Ethereum, primarily because it had a greater number of total
transactions. 

Awareness of illicit activity is vital to investors’ decision-making

processes. Risk-averse stablecoin users may be better served by
USDC. However, Tether has shown recent signs that they’re adopting
a more proactive stance in curbing illicit activity.Both USDC and
USDT are associated with some degree of money laundering and
other criminal behaviors. This is why it’s so important for
organizations to adopt stringent policies and procedures to identify
and report suspicious activity. As the regulatory landscape continues
to shift, it’s imperative that stablecoin companies and cryptocurrency
exchanges take their AML and KYC policies seriously, thereby
protecting themselves and users throughout the market.
References
 39

List of sources consulted during the research

Forbes, “The Power of Stablecoins - Enabling Fast and Efficient

Cross-Border Transactions”
CoinTelegraph, “USDT vs. USDC, vs. BUSD: What are the
similarities and differences?”
U.S. Treasury Department, “Report on Stablecoins”
AMLBot, “Stablecoins tracker”
Forbes, “What Is Tether? How Does It Work?”
CoinMarketCap, USDC
Investopedia, “Tether (USDT)” Meaning and Uses for Tethering
Crypto Explained”
Investopedia, “USD Coin (USDC): Definition, How It Works in
Currency, and Value”
CoinTelegraph, “What is USD Coin (USDC), fiat-backed stablecoin
explained”
Decrypt, “Chinese Police Arrest 21 in $54M USDT Money
Laundering Probe”
Tether, Letter to Senator Lummis and Representative Hill
Elliptic, “Tornado Cash mixer sanctioned after laundering over
$1.5 billion”
FATF, “Money laundering risks from ‘stablecoins’ and other
emerging assets”
AMLBot, USDT/USDC Backlisting
 40

Chainalysis, “What is AML and KYC for Crypto?”

Reuters, “U.S. congressional committee advances stablecoin bill”

Legal Nodes, “The EU Markets in Crypto-Assets (MiCA)

Regulation Explained”
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