Stablecoin boom fuels illicit flows and threatens US$500 billion in bank deposits
Chinese‑language crypto laundering networks now move about a fifth of global illicit digital funds, just as stablecoins become a core payments and trading rail that could drain money from traditional banks.
According to Chainalysis, Chinese‑language money‑laundering networks handled about 20 percent of illicit crypto funds over the past five years.
Bloomberg reported that they processed roughly US$16.1bn of an estimated US$82bn in laundered cryptocurrency in 2025.
The firm said the number of active wallets tied to these groups has expanded to nearly 1,800, forming what it calls a “full‑service underground ecosystem.”
Chainalysis told Reuters that overall crypto money laundering jumped from about US$10bn in 2020 to at least US$82bn in 2025, with Chinese‑language networks the fastest‑growing category.
The firm said these groups emerged during the pandemic and by 2025 were moving almost US$40m in crypto per day.
Reuters reports these networks operate despite China’s blanket ban on crypto trading and its refusal to recognise digital tokens as legal tender or assets.
In 2024, Chinese authorities prosecuted 3,032 people for crypto‑related money laundering, according to the country’s top procurator.
Chainalysis told Reuters that many of these groups rely on Chinese‑language “guarantee” platforms that provide escrow services and let money launderers advertise.
The firm described these platforms and related money‑movement services as a “complex and resilient ecosystem” that adapts and shifts channels when enforcement pressure increases.
Bloomberg reported that, according to Chainalysis, illicit activity persists in China because authorities focus on threats to capital controls and financial stability rather than all crypto use.
Kathryn Westmore, a senior associate fellow at the Centre for Finance and Security at RUSI, said the networks “have really embraced cryptocurrencies, notably stablecoins like Tether but also other cryptocurrencies like Bitcoin.”
She added that they use them “to launder the proceeds of cash‑generating criminal activities, like drugs or fraud.”
The US Treasury has also drawn a direct line between these networks and cartel finance.
Last August, the department warned banks to watch for Mexican drug cartels using Chinese money‑laundering networks to hide profits.
The US Treasury’s Financial Crimes Enforcement Network identified about US$312bn in transactions between 1 January 2020 and 31 December 2024 that were potentially tied to Mexican narcotics rackets and Chinese money‑laundering entities.
FinCEN Director Andrea Gacki called Chinese networks “global and pervasive” and said they “must be dismantled,” while US Treasury undersecretary John Hurley said they “enable cartels to poison Americans with fentanyl, conduct human trafficking, and wreak havoc among communities.”
At the same time, stablecoins have moved to the centre of both legitimate and illicit flows.
In a Bloomberg report released last June, the Financial Action Task Force said most illegal activity on cryptocurrency ledgers now involves stablecoins.
The intergovernmental body, which sets anti‑money laundering and counter‑terrorist financing standards, found that terrorists, drug traffickers and North Korean hackers have increased their use of stablecoins since its previous digital asset review in 2024.
FATF warned that broader use of stablecoins in “unhosted wallets” outside financial institutions “could amplify illicit finance risks,” and highlighted heavy use of Tether on the Tron blockchain.
One industry participant estimated about US$51bn in illicit on‑chain fraud and scam activity in 2024.
On the legitimate side, Bloomberg reported that stablecoin transaction volumes jumped 72 percent to US$33tn in 2025, citing Artemis Analytics.
USDC, issued by Circle Internet Group Inc., accounted for US$18.3tn of that, while Tether’s USDT handled US$13.3tn.
The Trump administration’s Genius Act, passed in July, created a dedicated legal framework for stablecoins and spurred broader institutional adoption, with companies including Standard Chartered, Walmart and Amazon exploring launches.
Standard Chartered has tried to quantify what this could mean for banks.
The bank estimated that US dollar‑backed stablecoins could pull around US$500bn in deposits out of US banks by the end of 2028, as reported by Reuters.
Geoff Kendrick, the bank’s global head of digital assets research, said regional US banks would be most exposed and argued that “US banks ... face a threat as payment networks and other core banking activities shift to stablecoins.”
A law signed last year created a federal regulatory framework for stablecoins and is widely expected to drive greater use of dollar‑pegged tokens.
The legislation bars stablecoin issuers from paying interest, but banks say it still allows third parties such as crypto exchanges to offer yield, creating new competition for deposits.
Banking lobbyists warn that, without changes, this could trigger an exodus of deposits that threatens financial stability, while crypto firms argue that banning interest on stablecoins would be anti‑competitive.
Kendrick told Reuters that the deposit impact depends on where issuers park their reserves. If issuers keep a large share in the banking system, that would blunt deposit flight.
However, he noted that Tether and Circle hold most reserves in US Treasuries, so “very little re‑depositing is happening.”
