New cryptocurrency regulations, including the GENIUS Act, will have limited success reducing illicit finance because stablecoins are predominantly held in their most anonymous form, according to economist Gita Gopinath. Speaking at the Annual General Meeting of the Bank for International Settlements, the former International Monetary Fund Chief Economist highlighted a fundamental challenge for policymakers: the gap between how stablecoins are actually used and how traditional money is regulated.

Why Are Stablecoins Held So Anonymously?

Gopinath's research found that stablecoins exist on a spectrum of anonymity depending on where they are held. U.S.-based centralized exchanges like Coinbase are considered the "least anonymous" option, functioning similarly to traditional bank deposits with clear ownership records. Non-U.S. exchanges such as Binance fall somewhere in the middle of the anonymity spectrum. However, the vast majority of stablecoins are held in self-custody wallets, where users control their own private keys with minimal oversight or identification requirements.

This contrasts sharply with traditional money, where people typically prefer less anonymity and rely on banks and regulated institutions. The preference for anonymous stablecoin holdings creates a regulatory blind spot that existing and proposed laws struggle to address.

What Do Current Regulations Actually Cover?

The GENIUS Act, which aims to regulate stablecoin issuers and centralized exchanges, has significant gaps in its coverage. Gopinath noted that the law does not extend to self-custody wallets, peer-to-peer transfers between individuals, or offshore issuers and exchanges. Even the European Union's Markets in Crypto-Assets regulation, known as MiCA, which is more restrictive than U.S. approaches, still excludes a large share of transactions.

These regulatory gaps matter because they leave major pathways for stablecoin movement largely unmonitored. When the majority of stablecoins are held outside regulated exchanges and in self-custody, regulators lose visibility into how the assets move and who controls them.

How Stablecoins Are Fueling Illicit Activity

The stakes of this regulatory challenge are substantial. According to Chainalysis, a blockchain analytics firm, stablecoins accounted for 84% of all illicit cryptocurrency transaction volume in 2025. This concentration reflects both the utility of stablecoins for criminal activity and the anonymity they provide compared to other digital assets.

Gopinath emphasized that while stablecoins represent a genuine innovation with legitimate uses, their anonymous nature creates a policy dilemma. She stated that policymakers must "manage the resulting trade-off" between enabling the benefits of stablecoins and preventing their misuse for illegal purposes.

Gopinath

Steps Regulators Are Taking to Address Stablecoin Risks

• Issuer Regulation: The GENIUS Act targets stablecoin issuers directly, requiring them to meet capital and operational standards, though this only affects issuers operating within U.S. jurisdiction.
• Exchange Oversight: Centralized exchange regulations aim to add transparency at the point where stablecoins are most traceable, though this covers only a portion of total stablecoin holdings.
• International Frameworks: MiCA and similar regulations in other jurisdictions attempt to create consistent standards, but gaps remain for offshore and decentralized platforms.
• Infrastructure Security: CertiK, a Web3 cybersecurity firm, has identified major exploit trends in stablecoin infrastructure over the past 18 to 24 months, prompting calls for better technical safeguards alongside regulatory measures.

New York prosecutors have raised additional concerns about the new stablecoin legislation, citing weaker safeguards for fraud victims compared to traditional financial regulations. This suggests that even as regulators tighten rules on issuers and exchanges, consumer protection gaps remain.

What Does This Mean for the Future of Stablecoin Regulation?

Gopinath's analysis suggests that policymakers face a fundamental challenge: traditional regulatory tools designed for banks and financial institutions may not be well-suited to an ecosystem where most activity occurs outside regulated channels. The anonymity preference in stablecoin usage reflects the technology's core appeal for users who value privacy and self-custody, making it difficult for regulations focused on institutional gatekeepers to achieve their intended effect.

The research indicates that meaningful progress on illicit finance prevention will likely require either a shift in how stablecoins are designed and used, or a broader regulatory approach that extends beyond issuers and exchanges to address the self-custody and peer-to-peer segments where most stablecoins actually reside. Until then, Gopinath's conclusion stands: current and proposed regulations will have only a "modest effect" on preventing illicit activity.