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Stablecoins have overtaken Bitcoin as the cryptocurrency of choice for online fraud and cybercrime, and blacklisted entities and nations now account for the lion’s share of global “illicit transaction volume” in digital tokens, a blockchain analytics firm concluded Thursday.

In its latest annual “Crypto Crime Report,” New York-headquartered Chainalysis claimed that after hitting an all-time high of nearly $40 billion in 2022, the aggregate value of cryptocurrency transferred to “illicit” addresses last year declined to $24 billion amid a significant drop in profits from online scams and thefts of digital assets.

“Through 2021, Bitcoin reigned supreme as the cryptocurrency of choice among cybercriminals, likely due to its high liquidity,” Chainalysis found. “But that’s changed over the last two years, with stablecoins now accounting for the majority of all illicit transaction volume … [and] comes alongside recent growth in stablecoins’ share of all crypto activity.”

Stablecoins have grown in popularity in part because their issuers directly peg their values to those of mainstream currencies, insulating them from the volatility that typifies Bitcoin and other, non-pegged cryptocurrencies.

While Thursday’s report does not identify the type or types of stablecoin in which the illicit payments occurred by name, many, if not most, of them probably involved Tether, a U.S. dollar-based asset also known as USDT.

Although darknet market sales and ransomware schemes still predominantly took place in Bitcoin in 2023, according to Chainalysis, online scammers and blacklisted parties who transacted in cryptocurrencies prior to last year shifted almost exclusively to stablecoins.

U.S.-designated entities and blacklisted jurisdictions such as North Korea and Iran meanwhile accounted for nearly $15 billion of the $24 billion of payments made to illicit addresses in 2023, according to the report.

Terrorist financiers, blacklisted individuals and parties located in jurisdictions subject to sanctions for the foreseeable future will have even more incentive to use stablecoins as their access to U.S. dollars through traditional means further wanes, Chainalysis noted Thursday.

The analytics firm published those and other findings two days after the U.N. Office on Drugs and Crime warned that USDT—specifically USDT on “TRON,” a decentralized blockchain—now ranks as a “preferred” method of payment for money launderers and online fraudsters in East and Southeast Asia.

Of the 8,754 active cryptocurrencies listed on CoinMarketCap, a website that tracks digital assets, Tether, with $95 billion in value now circulating, ranked third by market capitalization as of Thursday, and first by daily trading volume at nearly $40 billion.

By far the largest share of Tether’s global supply exists on TRON, where nearly $50 billion of the stablecoin’s overall value resided as of January.

In contrast with overall trends, cryptocurrency-denominated revenues from ransomware attacks and darknet markets surged again in 2023 after having dropped in 2022.

“That decline was driven largely by the shutdown of Hydra [the darknet market taken offline by U.S. and German authorities in April 2022],” Chainalysis said. “While no single market has yet emerged to take its place, the sector as a whole is rebounding, with total revenue climbing back towards its 2021 highs.”

Fuzzy math?

Chainalysis acknowledged Thursday that $24 billion represents a “lower bound estimate” and does not cover transactions associated with conventional drug trafficking and other “non-crypto native” crimes for which cryptocurrency featured only as a means of payment.

“One year from now, these totals will almost certainly be higher as we identify more illicit addresses and incorporate their historic activity,” the analytics firm cautioned.

Illustrating that point, Chainalysis revised last year’s estimate of roughly $21 billion in total illicit-cryptocurrency transactions in 2022 to nearly $40 billion Thursday after learning of previously unknown, “highly active” addresses hosted by platforms subject to U.S. sanctions or linked to blacklisted jurisdictions.

The 2022 estimate includes the $8.7 billion in claims now pending against FTX, the now-defunct, global cryptocurrency exchange, after a federal jury in New York found Sam Bankman-Fried guilty of wire fraud, securities fraud and money laundering.

But the updated total still only covers inflows to “illicit addresses” and excludes transactions conducted solely for money laundering purposes. Incorporating the latter category of transactions would “effectively be double-counting,” Chainalysis explained.

Critics contend that Chainalysis and other blockchain analytics firms regularly underestimate the scale of illicit, cryptocurrency-denominated transactions and use obscure, questionable methodologies to make their calculations.

In an interview with ACAMS moneylaundering.com, Alison Jimenez, a former examiner with the Florida Department of Banking and Finance, derided the “black box nature” of Thursday’s report, which does not identify which blockchains were included in the findings nor fully explain why last year’s estimate nearly doubled.

“They’re doing a much better job with all the caveats, but those caveats are still so huge that it makes the percentage [of illicit transactions], or even the total dollar amount, only a starting point,” said Jimenez, now president of Dynamic Securities Analytics in Tampa. “That headline number is very fluid, and that’s an issue.”

Contact Koos Couvée at kcouvee@acams.org