Public policy has consistently revealed a preference for less anonymous forms of money. Large denomination currency notes have been phased out, and banks are subject to know-your-customer and anti-money laundering obligations. Stablecoins are a new form of money that can be held either through regulated custodial wallets, which are less anonymous, or self-custody wallets, which are more anonymous. New research shows that over 70% of stablecoin holdings are in self-custody wallets and the majority of all transactions occur between such wallets. Only around 11% of stablecoin transactions can be geolocated, highlighting the limited visibility regulators have into cross-border flows.
Therefore, unlike traditional money, stablecoin usage appears to be shifting towards more anonymous forms of holding and exchange. This runs counter to long-standing policy preferences and suggests that current regulatory frameworks may be insufficient to curb illicit activity. The costs – in terms of lost fiscal revenue from tax evasion, evasion of sanctions, circumvention of capital controls and risks to monetary sovereignty – can be significant. Strengthening international cooperation in the regulation of stablecoins will be critical to ensure transparency in money.