Blockchain research firm Bitrace has conducted an analysis of Tether (USDT) transactions, revealing the role of money laundering in causing price deviations in stablecoins. As detailed in a report translated by Wu Blockchain and published on Medium on December 26, Bitrace identified two primary methods in which stablecoins like USDT are used for illicit activities. In the first scenario, known as the "up" scenario, a bad actor sells USDT to a launderer at market price and then repurchases a different stablecoin at a higher price, using the price difference as a laundering fee.
In the second scenario, termed the "downside," stablecoins are traded for legitimate activities on platforms with lax anti-money laundering/know your customer (AML/KYC) protocols. These transactions involve using USDT for payments on various online platforms, such as gambling sites, fund platforms, live streaming platforms, e-commerce, and even for salary payments. Due to weak AML/KYC checks, those selling USDT in such transactions face lower risks of account freezes, a common repercussion for accounts receiving cryptocurrency linked to criminal activities. In these cases, USDT might be sold at a slightly lower price, ranging from 0.05 to 0.3 yuan below the market rate.
The report also highlights the pricing irregularities of USDT in illegal transactions. For instance, in illegal trades, USDT's value can fluctuate between 8 to 10 yuan (RMB), compared to its usual peg near 7 yuan to 0.98 US dollars. This fluctuation is a direct consequence of the laundering activities.
Bitrace's investigation further traces how criminal organizations maneuver through various platforms using stablecoins. They reportedly utilize prominent cryptocurrency exchanges like FTX and Binance, as well as others like OKX, to transfer stablecoins to more centralized trading and payment platforms, including online gambling sites. The report emphasizes that these gangs exclusively deal in stablecoins for their transactions, avoiding any direct interaction with fiat currencies, regardless of market fluctuations.
Finally, the report mentions significant efforts to counteract these illicit activities. Notably, Tether has collaborated with law enforcement agencies, including the FBI, to monitor and address these issues. Additionally, in the United States, the ongoing adoption of Article 12 of the Uniform Commercial Code by state legislatures aims to protect users who, in good faith, receive digital assets previously associated with criminal activities. This law would offer a layer of security for innocent users caught in the web of complex digital asset transactions. Bitrace initially published its findings on December 17, shedding light on the darker aspects of cryptocurrency transactions.
