Counterparty risk in stablecoins is a growing concern for businesses relying on these digital assets. The risk stems from the potential default of stablecoin issuers or custodians, leading to issues like depegging or frozen funds. Key findings from the study include:
Issuer concentration risk: Circle and Tether control 88% of the stablecoin market, exposing users to their financial health.
Transparency issues: Many stablecoin issuers lack real-time proof of reserves, increasing uncertainty.
Regulatory inconsistencies: Different countries enforce varying rules, complicating compliance for corporate teams.
Illicit activity trends: Sanctions evasion and hacked funds surged in 2025, with $158 billion in illicit crypto transactions.
Operational risks: Depegging events and frozen funds disrupt liquidity and cash flow.
Key Takeaways for Corporate Finance Teams:
Monitor issuer risks: Evaluate reserve transparency and diversify holdings across issuers.
Enhance compliance: Screen transactions for sanctions and high-risk counterparties.
Automate governance: Use policy-based tools to enforce transaction rules and prevent violations.
Adopt self-custody: Reduce reliance on centralized custodians to protect funds.
By implementing these measures, businesses can reduce exposure to counterparty risks while navigating the evolving stablecoin landscape.
Navigating Stablecoin Yields and Risks | Devcon SEA
To quantify these factors for your own portfolio, you can use a stablecoin risk calculator to generate a custom safety score.
Counterparty Risk Trends in 2025-2026
2025 Stablecoin Illicit Activity Growth Rates by Category
Growth in Blocklisted Stablecoin Wallets
The year 2025 saw a sharp rise in blocklisted stablecoin wallets, driven by stricter enforcement measures and improved real-time intelligence sharing. Activity linked to blocklisted entities increased by 32% compared to the previous year, while illicit crypto transactions hit a record high of $158 billion - a staggering 145% jump from 2024.
Stablecoin issuers have started using advanced tools like the Beacon Network to quickly identify and block wallets tied to activities such as terrorism financing, fraud, and hacking.
A notable example of this trend was the Bybit exchange breach in 2025, which resulted in the theft of $1.46 billion. This single event accounted for 51% of all hacked or stolen cryptocurrency that year. The stolen funds were aggressively tracked, leading to a surge in blocklisted wallets as issuers acted swiftly to freeze the compromised stablecoins across multiple blockchain networks.
Illicit Activity Category | 2025 YoY Growth Rate |
|---|---|
Sanctions-related | >400% |
Blocklisted Entities | 32% |
Hacked or Stolen Funds | 31% |
Darknet Markets | 20% |
Illicit Goods and Services | 12% |
(Source: TRM Labs 2026 Crypto Crime Report)
Stablecoins Used for Sanctions Evasion
Sanctions-related crypto activity skyrocketed by over 400% in 2025, with stablecoins becoming a favored tool for those evading sanctions. A common tactic, known as the "stablecoin sandwich", involves converting fiat to crypto via an intermediary, transferring funds on-chain, and then converting them back to fiat. This approach complicates efforts to trace the identities of end users using public blockchain data.
In 2025, TRM Labs uncovered the A7 wallet cluster, a sanctions evasion network linked to Russian state interests. This network handled at least $39 billion in transactions, acting as a central hub connecting Russian entities with counterparts in China, Southeast Asia, and Iran. The discovery prompted a wave of blocklisting by stablecoin issuers and exchanges.
Additionally, the ruble-pegged stablecoin A7A5 processed over $72 billion in transactions in 2025, much of it tied to sanctioned activities. Chinese-language escrow services and underground banking systems also played a critical role, facilitating more than $100 billion in transactions and serving as key infrastructure for global illicit markets.
"The illicit crypto ecosystem is being shaped by its accessibility and integration into everyday financial activity." - TRM Labs
These developments highlight the growing challenges of addressing illicit activity in a fragmented regulatory landscape.
Inconsistent Regulations Across Countries
The enforcement trends of 2025 also underscored the difficulties posed by inconsistent regulations across different countries. For corporate finance teams managing stablecoin transactions, regulatory compliance remains a complex task. A license in one jurisdiction often holds no weight in another, creating what experts refer to as "jurisdictional theater." This fragmented system means a failure in one region can quickly lead to global repercussions.
Centralized issuers like Circle and Tether are required to comply with national sanctions, such as those imposed by OFAC, which forces them to blacklist certain wallets. However, the absence of uniform standards makes it difficult to distinguish legitimate transactions from those designed to evade detection. This issue is particularly pronounced in larger institutional and B2B transactions, which involve higher values and greater complexity, necessitating more sophisticated monitoring systems for sanctions compliance.
"Regulation is jurisdictional theater. A license in New York is irrelevant to a user in Nigeria. This creates fragmented legal risk where failure in one jurisdiction triggers global contagion." - ChainScore Labs
Risk Factors Affecting Stablecoin Users
Stablecoins have become a critical tool in modern finance, but their users face several structural risks that can significantly impact operations. Let’s break down the key challenges.
Reserve Transparency Issues
One of the biggest concerns for stablecoin users is the lack of clarity around reserves. When issuers fail to provide clear and complete reserve disclosures, stablecoins become vulnerable to sudden redemption runs. These runs can spiral out of control, creating major disruptions.
Between 2022 and 2023, Moody's documented over 600 cases where large-cap stablecoins lost their peg to their target value. A striking example occurred in March 2023 when USDC dropped to $0.87. This happened after Circle disclosed that $3.3 billion of its reserves were tied up in the collapsing Silicon Valley Bank. The fallout left corporate finance teams scrambling to cover cash flow gaps and meet payment obligations.
"Greater reserve transparency can increase run risk when stablecoin holders believe the quality of reserves backing the stablecoin is low." - Rashad Ahmed, Iñaki Aldasoro, and Chanelle Duley, BIS
Reserve allocation also varies widely among issuers. For instance, Circle holds about 13% of its reserves in bank deposits, whereas Tether keeps nearly none. Unlike traditional banks, stablecoin holders are directly exposed to the bankruptcy risk of the issuer, even under new regulations like the GENIUS Act.
Risk Factor | Impact on Corporate Finance | Mitigation Strategy |
|---|---|---|
Reserve Opacity | Unexpected capital losses | Scrutinize monthly attestation reports |
Custodial Risk | Frozen funds due to custodian failures | Diversify stablecoin holdings across issuers |
Liquidity Risk | Difficulty funding payroll or payments | Maintain fiat cash buffers for critical ops |
De-pegging | Balance sheet volatility | Use real-time risk scoring tools |
These transparency issues often amplify other risks, making proactive risk management and stablecoin compliance essential.
Reliance on Issuers and Custodians
Stablecoin users also depend heavily on centralized issuers like Circle and Tether, which poses additional risks. These issuers control the fiat reserves and manage redemptions, creating a single point of failure.
"Your stablecoin is only as secure as its least secure, regulated bank account." - ChainScore Labs
Issuers must comply with regulations, including OFAC sanctions, which means they can blacklist addresses or freeze assets at any time. For instance, Circle froze over $75,000 in USDC in August 2022 following sanctions on Tornado Cash. Compounding this, most stablecoin reserves rely on periodic audits rather than real-time proof of solvency.
As of February 2025, stablecoin-based payments reached an annualized run rate of $72.3 billion. USDT and USDC dominate this space, accounting for 88% of the total stablecoin supply.
"Audits are historical snapshots. They verify a reserve report from a specific date, not real-time solvency." - ChainScore Labs
Network Vulnerabilities and Hacking Risks
Beyond issuer-related risks, stablecoins are also exposed to network-level vulnerabilities. Even with strong internal security, compromised funds can lead to freezes and blocklisting, disrupting legitimate transactions.
Over half (53%) of Ethereum stablecoin transactions occur through DeFi smart contracts, which increases exposure to protocol weaknesses. DeFi transactions often involve multiple interactions with smart contracts and liquidity pools, each adding a layer of risk. For finance teams that prioritize smooth payment settlements over yield generation, direct transfers between externally owned accounts (EOAs) offer a safer alternative.
Another issue is bot activity and transaction manipulation, which can distort network metrics. For example, Ethereum networks often see a high volume of transactions below $0.10, likely caused by bots or wash trading. After filtering out this noise, monthly stablecoin volumes can drop from $5 trillion to $1 trillion - a critical factor for treasury teams assessing counterparty exposure.
How to Manage Counterparty Risk
While counterparty risk can't be fully eliminated, finance teams can take steps to greatly reduce it by implementing systematic checks and controls. The secret lies in building safeguards before transactions occur, rather than scrambling to address issues after the fact.
Run Pre-Transaction Risk Checks
Pre-transaction checks are your first line of defense, helping you identify potential issues before any money changes hands. These checks involve screening payments against sanctions lists, verifying the legitimacy of counterparties, and flagging high-risk transactions based on predefined criteria.
One important distinction to make is between Externally Owned Accounts (EOAs) and smart contracts. EOA-to-EOA transactions are direct wallet-to-wallet payments, offering more transparency and simplicity. On the other hand, interactions with smart contracts - often tied to DeFi protocols - can carry hidden risks. Prioritizing EOA transfers can help minimize unnecessary complexities.
Classifying counterparties is another critical step. Break them down into categories like P2P (individuals), B2B (institutional wallets), or P2B (person-to-business). This classification helps assess legitimacy and risk levels. For example, while P2P transactions make up 67% of EOA-to-EOA transaction counts, they only represent 24% of the total payment volume. The bulk of value flows through B2B transactions.
Sanctions screening is non-negotiable. These checks ensure you don’t inadvertently send funds to addresses that could lead to freezes or blacklisting.
Filtering transaction values also helps cut through the noise. On Ethereum networks, many transactions under $0.10 are often bot activity or wash trading. Ignoring these low-value transactions provides a clearer view of genuine payment activity and reduces unnecessary counterparty exposure.
Once these proactive checks are in place, automated policies can further strengthen your defenses.
Enforce Policy-Based Governance
After confirming counterparty legitimacy, automated governance ensures your risk management rules are applied consistently and in real time. This is where policy-as-code systems come into play, turning your approval rules into automated checks. Instead of relying on manual processes like spreadsheets or Slack messages, these systems enforce your policies before any transaction is executed.
Examples of policies you can set include:
Payments to new addresses exceeding $5,000 require CFO approval.
Transfers over $10,000 on weekends need additional verification.
Only allow USDC transactions on Base or Ethereum networks.
These automated rules act as gatekeepers, stopping violations before they escalate into bigger problems.
Governance frameworks also help manage centralized asset exposure. Take MakerDAO’s response to the March 2023 banking collapse as an example. Faced with $3.5 billion in USDC exposure, the protocol used decentralized voting to adjust collateral parameters and reduce reliance on a single centralized issuer.
Another key component of governance is real-time reserve verification. Traditional quarterly audits only provide a “snapshot” of solvency, which can quickly become outdated. Stablecoins with continuous, cryptographic proof-of-reserves offer a more accurate and up-to-date picture of financial health.
Use Self-Custodial and Audit-Ready Systems
To further protect corporate treasury operations, self-custodial systems and audit-ready measures are essential. Self-custody gives you direct control over your private keys, eliminating the risks tied to centralized custodians and reducing the chances of arbitrary asset freezes.
The March 2023 USDC depeg underscored the vulnerabilities of centralized reserve exposure. By using self-custodial systems with diversified reserve backing, organizations can mitigate these risks.
Audit trails are equally important. Every step of a transaction - from initial intent to final authorization - should be logged with timestamps, approval records, and policy checks. This creates a robust trail of evidence that can be shared with auditors, boards, or regulators.
Modern self-custodial systems often rely on MPC-based wallets (multi-party computation). These wallets distribute signing authority across multiple parties, ensuring no single entity can move funds alone. This setup combines the speed of blockchain settlements with the governance controls typically expected in traditional finance systems.
How Stablerail Addresses Counterparty Risk
Stablerail has crafted a solution specifically designed to help finance teams manage counterparty risk without sacrificing the speed and efficiency of on-chain transactions. By integrating governance controls before transactions are signed, the platform ensures a balance between traditional banking safeguards and the rapid pace of blockchain settlement.
Stablerail acts as a control layer positioned above custody and before signing. It uses MPC-based wallets to maintain self-custody, meaning your organization retains full control of its keys while Stablerail never has unilateral signing authority. This setup eliminates the risk of third-party custodians freezing or mismanaging funds. At the same time, it introduces business intelligence tools and automated policy enforcement that go beyond what traditional custody solutions offer. Core features like pre-sign checks, policy automation, and thorough audit trails create a robust framework for managing risk.
Pre-Sign Verification and Risk Scoring
Before any transaction is signed, Stablerail performs a series of pre-sign checks. These include sanctions screening, policy enforcement, behavioral anomaly detection, counterparty scoring, and transaction filtering (e.g., identifying low-value bot activity). The result? A detailed risk dossier with a clear verdict: PASS, FLAG, or BLOCK.
Stablerail also scrutinizes smart contract interactions to address potential vulnerabilities. Each risk dossier is backed by plain-English explanations and evidence, such as timestamps and relevant policy clauses, ensuring decision-makers have all the context they need before approving a transaction.
Policy-as-Code Governance Engine
The Policy Console transforms compliance into an automated, real-time process. Stablerail's "Compliance-as-Infrastructure" model allows organizations to define rules like "Payments over $5,000 require CFO approval" or "Weekend transfers above $10,000 need additional verification." Once set, these rules are enforced automatically, ensuring every payment intent is evaluated against pre-defined policies before execution.
"A policy engine is the decision authority between payment intent and transaction execution, returning outcomes like approve, deny, hold, route, or step-up."
Stablecoin Insider
Policies are managed as code, complete with version control, automated testing, and rollback options. This ensures compliance processes are scalable, explainable, and fully traceable. Every policy decision is tied to a specific version, providing a clear record of which rules were active at any given time.
Complete Audit Trails for Finance Teams
Stablerail ensures transparency at every step by documenting the entire transaction process. From the creation of payment intent to risk checks, anomaly flags, overrides, and final approvals, every action is recorded in a detailed audit trail. These Decision Records capture outcomes, policy versions, timestamps, and reason codes, providing CFO-grade evidence for auditors and regulators.
This capability has become even more critical following the enactment of the GENIUS Act in July 2025, which introduced strict disclosure and liquidity requirements for stablecoin issuers. While these regulations aim to protect stablecoin holders, risks such as issuer bankruptcy remain. Transparent record-keeping is essential for monitoring counterparty health and ensuring compliance.
Stablerail also supports end-to-end reconciliation, ensuring that on-chain settlements align perfectly with internal ledger entries. This thorough documentation empowers finance teams to justify every transaction decision with complete confidence.
Summary and Next Steps
Main Findings from the Research
The analysis highlights five important takeaways:
Counterparty risks in stablecoins: Major concerns include issuer concentration, lack of transparency in reserves, and uneven regulatory oversight. High issuer concentration creates significant vulnerabilities, as seen during the March 2023 Silicon Valley Bank collapse, where $3.3 billion in USDC reserves led to a major depeg event. Additionally, reserve allocation practices differ significantly across issuers.
Regulatory challenges: Finance teams face hurdles due to inconsistent regulations. For example, while the GENIUS Act (July 2025) imposed stricter disclosure and liquidity requirements, stablecoins still experience frequent depegging events. Moreover, blockchain data often exaggerates transaction volumes, with genuine economic activity estimated at $1 trillion monthly, making it difficult to separate legitimate transactions from wash trading or bot-driven activity.
Sanctions evasion and network vulnerabilities: Risks extend to illicit activities and hidden transaction layers. In July 2025, the T3 Financial Crime Unit froze over $200 million in illicit assets within the digital asset ecosystem. Additionally, layered fund transfer models obscure transaction details, as much of the data resides on private platforms rather than public ledgers.
Action Steps for Finance Teams
To address these risks, finance teams should follow stablecoin treasury management best practices and adopt targeted measures.
Pre-transaction screening: Conduct thorough checks of wallet addresses against sanctions lists and high-risk indicators before processing payments. Blockchain intelligence tools can help identify and filter out irrelevant activity, such as transactions below $0.10, which are often linked to bots or wash trading.
Policy-based governance: Establish internal risk limits for stablecoin exposure relative to capital and set conservative thresholds for issuer concentration. Automated systems should enforce multi-person approval for high-value transfers and ensure end-to-end reconciliation of stablecoin transactions with internal ledgers. This ensures custody balances align with customer holdings and fiat reserve movements. Comprehensive audit trails are essential for regulatory compliance and internal reviews.
Leverage automation tools: Solutions like Stablerail can streamline pre-transaction checks and governance processes, reducing manual effort while enhancing risk mitigation.
These steps provide a roadmap for finance teams to navigate the complexities of stablecoins while minimizing exposure to systemic and operational risks.
FAQs
How do I measure stablecoin issuer risk before holding funds?
To gauge the risk associated with stablecoin issuers, it's important to look at several key factors: the issuer's financial condition, the quality and type of reserve assets backing the coin, and how transparent their operations are. Pay close attention to their stability mechanisms, such as whether they use overcollateralization to maintain value. Historical performance also provides valuable insight into how well the issuer has managed stability in the past.
Studies indicate that stablecoins backed by cash reserves tend to maintain stability more effectively. However, even these aren't without risks. To better understand an issuer's reliability, tools like governance and risk scoring modules can be incredibly useful. These tools can perform pre-sign checks, including counterparty risk analysis and sanctions screening, offering a more comprehensive assessment of potential risks.
What causes a stablecoin freeze or wallet blocklisting?
Stablecoins can be frozen, or wallets might end up on blocklists for several reasons tied to counterparty risks, regulatory measures, or specific risk evaluations. These actions often happen due to factors like sanctions, exposure to flagged entities, violations of policies, or unusual activity patterns. Such issues are typically flagged through pre-sign checks and policy enforcement processes designed to maintain compliance and security.
What controls should a finance team add before signing stablecoin payments?
Finance teams can strengthen their processes by adopting pre-sign controls to reduce risks and maintain compliance. These measures include:
Sanctions screening: Ensuring payments comply with regulations by checking against sanctioned entities.
Exposure analysis: Monitoring financial exposure to avoid excessive risk.
Policy enforcement: Applying company policies consistently, such as approval thresholds and restrictions.
Anomaly detection: Identifying irregularities, like unusual payout patterns, to flag potential issues.
Using policy-as-code streamlines compliance by automating the application of these rules. Adding human-in-the-loop approvals ensures critical decisions involve oversight, while maintaining detailed audit trails for every decision and signing event supports accountability and meets regulatory standards.
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