Why Sanctions Evaders Both Love and Fear Stablecoins

When analysts first worried about crypto and sanctions, they focused on bitcoin. Today, the more important asset is the dollar stablecoin. Blockchain analytics firms that track illicit flows have reported in recent years that stablecoins account for a majority of the value received by addresses linked to sanctioned entities, scams and other illegal activity, mirroring their dominance in legitimate crypto trading and payments. That might seem like a victory for evaders. Yet stablecoins carry a built-in weakness for anyone trying to escape US sanctions: they are issued by companies that can freeze tokens, and increasingly are required by law to do so.

Why stablecoins became the evader's tool of choice

The reasons mirror why stablecoins succeeded in legitimate markets. They hold a stable value, avoiding the volatility of bitcoin, which matters when the goal is to pay for goods or preserve trade revenue. They are liquid and widely accepted by over-the-counter brokers in trading hubs across Asia, the Middle East and Latin America. They move quickly, often on high-throughput blockchains with low fees. For a business in a sanctioned or high-risk jurisdiction, a dollar stablecoin offers something the banking system increasingly denies: dollar exposure without a correspondent bank.

The largest dollar stablecoin, issued offshore, has been particularly prominent in these flows, especially on the Tron network, which offers cheap and fast transfers. Its ubiquity among informal exchange brokers in many emerging markets makes it a de facto unit for grey-market trade.

Scale is hard to pin down. Estimates of the share of stablecoin activity tied to illicit use vary widely, and analytics firms generally put it at a small fraction of total volume, while noting that their figures capture only addresses they can identify. What is clear is the direction of travel: as legitimate trade finance experiments with stablecoins, the gray-market economy is adopting the same tools, often through the same brokers. That makes it harder for compliance teams to draw a clean line between a small importer using stablecoins because banks are slow and a front company using them because banks have refused it.

The freeze button

Every major fiat-backed stablecoin is controlled by smart contracts that allow the issuer to blacklist addresses and freeze the tokens held there. Issuers have used this power many times, in response to law enforcement requests, hacks and sanctions designations. The largest issuers have said they cooperate with US authorities and freeze addresses listed by OFAC. Over the years, the cumulative value frozen has reached into the billions of dollars, according to issuers' own statements and analytics firms' estimates.

The GENIUS Act, signed in July 2025, formalizes this capability for any stablecoin allowed to serve US users. Permitted issuers must have the technical ability to freeze and seize tokens and must comply with lawful orders. Foreign issuers seeking access to the US market must meet similar requirements. In effect, US law now treats freeze capability as a condition of legitimacy.

A dollar stablecoin gives the evader the dollar's reach, and the Treasury its reach in return.

The evader's calculation

Sophisticated actors manage these risks by moving funds quickly, using many addresses, holding stablecoins only briefly before converting, and relying on brokers who operate largely outside the reach of US authorities. Some have shifted toward assets without a central issuer, or toward stablecoins issued in jurisdictions hostile to US policy. Each alternative sacrifices some of the liquidity and stability that made dollar stablecoins attractive.

The enforcement toolkit

• Designation of addresses so that compliant platforms block them automatically.
• Issuer freezes that immobilize tokens at flagged addresses.
• Pressure on exchanges and brokers that serve as conversion points to cash.
• International cooperation through the FATF travel rule, which requires exchanges to share sender and recipient data.

The combination is powerful, but its effectiveness depends on reaching the conversion points. Over-the-counter brokers in jurisdictions with weak supervision remain the soft underbelly. They can convert stablecoins into cash or local bank transfers with minimal checks, and they are harder to pressure than large, regulated exchanges.

Policy tensions

The freeze power raises questions that go beyond sanctions. Critics argue that it concentrates enormous discretionary power in private issuers and in the government agencies that direct them, with limited due process for people whose funds are frozen in error. Crypto advocates see it as a betrayal of the original promise of censorship-resistant money. Governments outside the US worry that dollar stablecoins extend the reach of American sanctions policy into their own economies, a concern that strengthens the case for local alternatives.

From a Western sanctions perspective, however, the growth of regulated dollar stablecoins may be a net advantage. It channels more cross-border value through instruments subject to US control and visible on public ledgers. The paradox of stablecoins is that the very success of dollar tokens as the currency of the crypto economy extends the reach of the institution many crypto users wanted to escape.

The bottom line

Stablecoins have become central to both legitimate and illicit crypto flows. For sanctions evaders, they offer convenience at the price of exposure. For enforcers, they provide visibility and a freeze button, but only if the conversion points are also covered. As regulation tightens and issuers formalize their compliance obligations, the balance is shifting toward enforcers, though the gray-market brokers at the edges ensure the contest will continue. This article is analysis, not legal or investment advice.