The tracking is made possible by Chainalysis’ Know Your Transaction (KYT) suite, which allows token issuers to monitor the activity of their assets. The real-time Anti-Money Laundering (AML) solution assists compliance efforts by tracking the entire chain of a token’s life, from issuance to redemption.
Chainalysis is rolling out a global compliance solution for Tether (USDT), a Feb. 12 press release announced. The stablecoin’s issuer is now able to identify “high risk” transactions occurring on its network.
KYT provides both an API and a user interface to track suspicious activity, with various filtering tools.
Preparing for regulators
Tether representatives did not directly reveal to Cointelegraph why the firm chose to enhance its compliance measures now.
However, regulators around the world recently started signaling that stablecoins deserve deeper scrutiny. In October 2019, Financial Crimes Enforcement Network (FinCEN) Director Kenneth Blanco noted that stablecoins are not exempt from complying with AML laws.
For the regulator’s purposes, stablecoin issuers are categorized as money services businesses (MSB), and have to adhere to the regulatory standards reserved for such companies.
Cryptocurrency exchanges are also categorized as MSBs, and have gradually implemented stricter KYC and AML controls. But while compliance for an exchange is relatively straightforward – its scope is only for the money coming in and out – stablecoin issuers are potentially faced with the much harder task of tracking network activity.
Regulating the flow of money in and out of the stablecoin network is relatively simple, yet regulators around the world have often identified severe risk for stablecoin transactions.
Tracking activity within the network itself may alleviate these concerns. While Tether cannot confiscate the “high risk” tokens directly, it can freeze the wallets that contain them.
Tether Stablecoin Taps Chainalysis for Anti-Money Laundering Compliance Tools
Stablecoin issuer Tether is partnering with blockchain forensics firm Chainalysis to bolster its anti-money laundering tools.The companies announced Wednesday that Tether would apply Chainalysis’ «Know Your Transaction» tool for token issuers, allowing the stablecoin firm to monitor activity and «quickly understand the risk profile of each token holder,» according to a press release.
USDT, the dollar-pegged stablecoin issued by Tether, is currently live on the omni, ethereum, EOS, liquid, tron and algorand blockchains. The company has also issued tokens pegged to gold (XAUT), the euro (EURT) and offshore Chinese yuan (CNHT).
«This solution allows us to ensure a secure compliance program that fosters trust with regulators, law enforcement agencies and users,» Tether chief technology officer Paolo Ardoino said in a statement. «This is achieved without sharing our user’s identifying information, as such data is only kept on our servers.”
Chainalysis has rapidly expanded since its formation five years ago, claiming to currently offer its services and tools to exchanges, financial institutions and government agencies in 40 different countries.