- Tether has partnered with Chainalysis to monitor transactions of the market-leading USDT stablecoin on secondary markets as regulators pile pressure on stablecoin issuers.
- Chainalysis is expected to sound the alarm on any transfers to sanctioned entities, terrorist organizations, hacker groups or any other illicit activities.
While criminal activities in the crypto world represent only a tiny fraction of overall activity, stakeholders are still investing billions to stamp it out at a time when global regulators are ramping up their crypto scrutiny. The latest move is by Tether, the company behind the USDT stablecoin, which has partnered with Chainalysis to monitor USDT transactions.
Tether announced the partnership this week, revealing that the New York-based blockchain analytics firm will develop customizable solutions to monitor the stablecoin’s secondary market activity. This encompasses any transactions using USDT that don’t involve Tether, which is basically 99.9% of the stablecoin’s activity.
Chainalysis solutions will enable Tether to “methodically monitor transactions, offering enhanced understanding and oversight of the USDT market,” the company said in its announcement. The company added:
It will also serve as a proactive source of intelligence for Tether compliance professionals and investigators, enabling them to identify wallets that may pose risks or may be associated with illicit and/or sanctioned addresses.
Why the Chainalysis Partnership is Vital for Tether
USDT remains the largest stablecoin in the market at a $110.94 billion market cap, over three times that of second-placed USDC. It has also consistently ranked first for trading volume for years; in the past day, for instance, USDT’s trading volume was $35.537 billion, twice that of second-placed Bitcoin and seven times higher than USDC.
However, it has come under regulatory scrutiny for years for all manner of allegations. These range from alleged Bitcoin manipulation by Tether to misleading statements about whether the stablecoin is backed 1:1 by the US dollar. The stablecoin’s most significant risk, however, could be its purported use in crime. As several cases against crypto heavyweights, including Binance and BitMEX, have shown, the US government doesn’t take these accusations lightly.
Stablecoins’ use in crime is not news. According to a report by Chainalysis, stablecoins accounted for 70% of all crypto scams last year and 83% of crypto sent to sanctioned entities. The report added that sanction evasion saw $24.2 billion in stablecoin volume over 2022 and 2023.
“If you’re in a jurisdiction where you don’t have access to the US dollar due to sanctions, stablecoins become an interesting play,” explains Andrew Fierman, the analytics firm’s head of sanctions strategy.
With CZ now set to spend four months in prison, as CNF reported, and others like Sam Bankman-Fried also sentenced, it’s critical for Tether to be compliant in the new era of regulatory scrutiny.
The partnership is essential for the entire crypto industry, not just for Tether and USDT. The stablecoin accounts for a significant chunk of all crypto transactions.
Meanwhile, the crypto market traded sideways over the weekend, gaining marginally in overall market cap from $2.225 trillion on Friday to $2.35 trillion at press time. Bitcoin trades at $63,745, recovering from the CZ sentencing blow earlier in the week, where it dipped to $56,000.
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