FATF targets stablecoin wallets: $154B illicit flows in crosshairs

Stablecoins are rapidly expanding beyond crypto trading into payments and cross-border transfers, but regulators are increasingly focused on risks linked to how these assets move between users.

A new report from the Financial Action Task Force highlights that peer-to-peer transfers conducted through self-custody crypto wallets can bypass regulated intermediaries, creating potential gaps in anti-money laundering oversight.

The global watchdog said these transactions may occur outside monitoring systems used by exchanges, custodians, and financial institutions.

As stablecoins become more widely used in financial networks, authorities are being urged to assess how these transfers interact with existing compliance frameworks.

Self-custody wallets and oversight gaps

The FATF report examines the role of unhosted or self-custody wallets in the digital asset ecosystem.

These wallets allow individuals to hold and transfer cryptocurrencies directly without relying on a regulated service provider.

This structure can create challenges for anti-money laundering supervision.

When two users send stablecoins directly between their wallets, there may be no regulated intermediary involved.

Traditional financial systems rely on institutions such as banks or payment providers to monitor transfers and report suspicious activity.

Peer-to-peer transfers conducted through self-custody wallets fall outside these monitoring channels.

The FATF said this creates a gap in the oversight framework because authorities cannot rely on regulated entities to detect and report unusual activity.

Peer-to-peer transfers under scrutiny

The report identifies peer-to-peer stablecoin transfers as a key vulnerability in the ecosystem.

These transactions take place directly between users and do not require the involvement of virtual asset service providers or financial institutions subject to compliance obligations.

Because these transfers can occur outside regulated platforms, they may limit the ability of authorities to track potentially suspicious movements of funds.

Stablecoins are becoming widely used across the crypto market.

Their design, typically tied to fiat currencies such as the US dollar, has made them popular for trading, payments, and international transfers.

FATF calls for risk-based monitoring

The FATF urged jurisdictions to evaluate the risks associated with stablecoin arrangements and introduce proportionate mitigation measures where necessary.

Possible steps include enhanced monitoring when self-custody wallets interact with regulated crypto platforms such as exchanges.

The watchdog also highlighted the need for clearer anti-money laundering and counterterrorism financing obligations for entities involved in issuing or distributing stablecoins.

The report also noted that activity on public blockchains remains traceable because transactions are recorded onchain.

However, the pseudonymous nature of wallet addresses can make it harder to identify the individuals behind specific transfers.

Data cited in the report provides additional context on the scale of illicit activity within the crypto market.

On Jan. 7, blockchain analytics firm Chainalysis reported that illicit crypto addresses received at least $154 billion in 2025.

The research found that stablecoins accounted for 84% of the illicit transaction volume.

Despite the large figure, Chainalysis said criminal activity still represents a small portion of total blockchain activity.

Illicit transactions accounted for less than 1% of total crypto transaction volume.

The FATF referenced these findings to illustrate that while illicit activity exists, it remains limited compared with the overall scale of digital asset transactions.