Global financial regulators are raising fresh concerns about the rapid growth of stablecoins, warning that the digital tokens are increasingly being used in money laundering and sanctions evasion even as lawmakers debate how tightly to regulate the industry’s expanding financial role.
A new report from the Financial Action Task Force (FATF), the international body that sets anti-money laundering standards for governments, concludes that stablecoins have become the most commonly used form of cryptocurrency in illicit transactions. The finding comes as policymakers in Washington and other capitals grapple with several other contentious issues surrounding stablecoins, including whether issuers or platforms should be allowed to pay yields that resemble bank interest.
As reported by Decrypt, The FATF’s analysis highlights how the same features that have made stablecoins attractive for legitimate digital payments—price stability, liquidity and easy cross-border transfers—also make them useful tools for criminal networks seeking to move funds discreetly.
According to the report, peer-to-peer transfers conducted through so-called unhosted wallets represent one of the largest vulnerabilities in the stablecoin ecosystem. These wallets are controlled directly by users rather than by regulated intermediaries such as exchanges or custodial service providers, making it harder for authorities to monitor transactions or enforce compliance obligations.
The watchdog said these direct wallet-to-wallet transactions have become a “key vulnerability” in efforts to combat money laundering, terrorist financing and sanctions evasion involving digital assets.
Related: OCC Issues Proposed Rules for Stablecoin Activity Under the GENIUS Act
Stablecoins have grown rapidly in recent years, with more than 250 tokens circulating globally by mid-2025 and a total market value of roughly $314 billion, according to industry data cited in the report. At the same time, blockchain analytics firm Chainalysis estimates that stablecoins accounted for about 84% of the $154 billion in illicit cryptocurrency transactions recorded in 2025.
The FATF said criminal groups increasingly rely on stablecoins to obscure the origin of funds through complex laundering chains. These schemes often involve moving assets through multiple wallets or across different blockchains before converting them into traditional currency through exchanges or over-the-counter brokers.
In particular, the report cites evidence that North Korean cybercrime groups have used stablecoins to launder proceeds from hacking campaigns. Iranian actors linked to the Islamic Revolutionary Guard Corps have also used stablecoins and other digital assets to fund procurement of drone components and other equipment while transferring funds to sanctioned groups.
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To address these risks, the FATF is urging governments to require stablecoin issuers to build compliance controls directly into the tokens themselves. The report recommends that issuers maintain the technical capability to freeze, burn or block tokens associated with suspicious wallets and to maintain “deny-lists” or “allow-lists” embedded in smart contracts.
The FATF also called for broader adoption of blockchain analytics tools and stronger enforcement of the “travel rule,” which requires financial institutions and crypto service providers to share information about the sender and recipient of digital asset transfers.
The report arrives amid wider political debate over the role stablecoins could play in the financial system.
In the U.S., lawmakers are currently revisiting rules governing whether stablecoin issuers or related platforms should be allowed to pay yields to users who hold the tokens. Some policymakers argue that such rewards could blur the line between stablecoins and traditional bank deposits.
During a recent Senate Banking Committee hearing, several lawmakers warned that offering returns on stablecoins without the regulatory safeguards applied to bank deposits could create new risks for the financial system. Sen. Angela Alsobrooks (D-MD) said the concern is that stablecoin products might mimic deposit accounts “without any of the protections or regulations that accompany that product.”
Banks and community lenders have argued that allowing yields on stablecoins could accelerate deposit flight from traditional institutions, potentially reducing lending capacity across the banking sector. An analysis cited by banking groups estimated that widespread stablecoin yields could reduce industry deposits by more than $1 trillion.
Crypto companies have pushed back on those claims, arguing that stablecoins are primarily used for payments and trading rather than as substitutes for bank accounts.
Taken together, the competing debates highlight the complex regulatory landscape surrounding stablecoins. While policymakers see the technology as a potential foundation for faster digital payments, regulators are simultaneously confronting risks ranging from financial crime to banking system disruption.
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