Are Stablecoins the New Currency of Crime?

In the digital economy, cryptocurrencies remain unstable. Bitcoin often fluctuates thousands of dollars in a single trading session while smaller tokens can experience even sharper swings. For investors and small businesses alike, this volatility can wipe out savings accounts and make reliable financial planning nearly impossible. 

‍

Enter stablecoins: a cryptocurrency designed to solve this problem by being anchored to traditional assets like the U.S. dollar, which don’t fluctuate unpredictably. Despite this promise, however, stablecoins have emerged as one of the most significant challenges financial authorities face worldwide.

‍

What are Stablecoins?

‍

A stablecoin is a digital token that is pegged in value to another financial asset like the dollar or euro. They are designed to stay at a fixed value, usually at a 1:1 exchange rate, and backed by real assets at financial institutions. Unlike Bitcoin, which often functions as a high-value investment where people store their wealth, stablecoins are used for a variety of everyday transactions such as cross-border payroll, online shopping and bank transfers. Major institutions like JPMorgan even have their own stablecoin-like digital tokens that handle billions of dollars in transactions daily within their institution. 

‍

The passage of the GENIUS Act of 2025, the first comprehensive regulatory framework for stablecoins, also marked a turning point for the digital currency. By establishing clear rules for issuance and oversight, the law effectively legitimized stablecoins as a safe alternative to traditional payment mechanisms. Major retailers like Walmart and Amazon are reportedly exploring the possibility of creating their own stablecoin systems and in 2025, transaction volumes of stablecoins totaled more than $35 trillion – nearly three times Visa’s transaction volume.

‍

The Stablecoin Tax Gap

‍

Stablecoin usage has surged since 2020 and now dominates today's digital economy, yet much of this activity falls through the cracks of existing tax enforcement frameworks and accounts for nearly 84% of all illicit transaction volume. Several characteristics of stablecoins make this gap particularly difficult to close:

‍

• Price Stability: Because stablecoins are pegged to the U.S. dollar, some users may incorrectly assume their transactions don't trigger taxable events. This misunderstanding, combined with the lack of standardized reporting requirements, means that taxable activity routinely goes unreported.
• High Liquidity: Stablecoins are accepted virtually everywhere in the crypto market, making it easy for users to move funds across exchanges, wallets, and platforms — often across multiple jurisdictions. This can make it extraordinarily difficult for authorities to track the full picture and assess compliance.
• Transaction Volume and Complexity: The sheer volume of stablecoin transactions on public blockchains has grown exponentially. While this activity is recorded on a public ledger known as the blockchain, the scale creates an enormous challenge for tax enforcement agencies. Distinguishing taxable events from routine transfers among millions of daily transactions requires resources and technical capabilities that most agencies currently lack.
• The Ease of Moving Funds Offshore - Stablecoins allow users to transfer value across borders instantly without relying on traditional payment rails, the networks and systems—like credit card networks, bank transfers, or real-time payment platforms—that securely move money from one account to another. Funds can move freely to foreign exchanges, decentralized platforms, or self-custodied wallets in jurisdictions with limited reporting requirements, leaving authorities with little visibility unless assets re-enter a regulated institution.  This ability to shift capital quickly and quietly across jurisdictions complicates enforcement, audit trails, and information sharing between tax authorities.

‍

What Authorities Can Do Now

‍

While the challenge to address the stablecoin tax gap is formidable, it is not insurmountable. A few practical steps can help tax authorities and enforcement agencies dramatically increase visibility into digital-asset activity and strengthen compliance and enforcement:

‍

• Advanced Analytics: The transparency of blockchain technology — where every transaction is publicly recorded — provides tax authorities with a powerful foundation for enforcement. Companies like IVIX have developed next-generation countermeasures that can analyze millions of transactions in minutes to identify suspicious patterns, detect anomalies and connect the dots to real-world identities. Partnering with third-party experts can provide tax authorities immediate capacity without waiting to build in-house expertise.
• “Know Your Customer” (KYC) Data: Regulators are increasingly requiring major platforms and centralized exchanges to verify their customer identities and maintain sophisticated transaction monitoring the same way banks and other regulated financial institutions do. When combined with on-chain data and advanced blockchain analytics, KYC helps authorities connect real-world individuals or businesses to wallet activity, closing a critical gap in the reporting chain. 
• “Freezing” Stablecoins: The GENIUS Act of 2025 mandated that major stablecoin issuers must possess the technical capability to “freeze” stablecoin wallets found to be associated with illicit activity. Extending similar cooperative frameworks to support tax enforcement — with appropriate due process protections — could give authorities a powerful mechanism to ensure compliance and recover unpaid obligations.
• Real-Time Detection Capabilities: Automated systems can spot sudden spikes in volume, rapid hops across multiple wallets, or transactions characteristic of structuring and layering. This allows investigators to focus on the highest-risk activity first and allocate limited enforcement resources more effectively.

‍

The Bottom Line

‍

Digital financial crimes are on the rise. In 2024 illicit digital wallets received $64 billion and in 2025, that number skyrocketed to $158 billion. However, this doesn’t mean authorities need decades of training in cryptocurrency to combat these threats effectively. 

‍

Through innovative technology that blends machine learning and graph analytics with open-source intelligence and AI, third-party subject matter experts like IVIX can help tax authorities navigate the complexities of crypto-related fraud, strengthen enforcement and enhance compliance. 

If you are a tax authority or enforcement agency ready to modernize compliance and gain visibility into the hidden crypto economy, connect with IVIX experts today for a quick introduction.