(Bloomberg) -- The $120 billion cryptocurrency Tether has gained traction in European, Middle Eastern and African time zones, a study suggests, as the purported dollar surrogate reportedly comes under greater US scrutiny.
The trend emerges in data on first-time use of digital wallets containing the stablecoin — also known as USDT — from consultancy Chainalysis Inc. Activations crest from 9 a.m. to 2 p.m. Coordinated Universal Time, or UTC, equivalent to late morning or afternoon in the likes of Moscow, Tehran, Kigali and Istanbul.
Chainalysis said the figures span Jan. 1 to Oct. 8 this year and offer a proxy for the geographies where USDT is seeing more uptake. But a Chainalysis spokesperson also stressed that they aren’t definitive because a person could be located anywhere in the world no matter when they fire up a wallet.
The data hint at the possibility of USDT adoption in sanctioned nations like Russia and Iran that lack ready access to the global banking system. A comparable study by Chainalysis and The Block Research in a report three years ago pointed to USDT popularity in Asian hours. Back then, Asia was a key source of the speculative fervor fueling a pandemic-era digital-asset boom.
Tether’s USDT is intended to hold a constant $1 dollar value underpinned by reserves that the company says are mostly invested in US Treasuries. While crypto’s dominant stablecoin is a popular place to park funds to deploy in digital-asset trading and lending, there are growing indications it is also being used for payments that skirt traditional banking rails.
Russian Commodities
For instance, Bloomberg News reported in May that some Russian commodities firms struggling to execute transactions with Chinese counterparts tapped USDT. Such shifts pose a challenge for regulators as they try to police money flows.
Tether’s Head of Economics Philip Gradwell said its analysis of data from vendors including Chainalysis shows the share of activity in Europe, the Middle East and Africa has been stable over the last two years, while shifting from the region’s east to the west. In Africa, stablecoins are now widely used as an alternative for cross-border payments and value preservation, Gradwell added.
On Oct. 25, the Wall Street Journal reported that federal prosecutors in Manhattan are investigating Tether Holdings Ltd. for possible violations of sanctions and anti-money-laundering rules. The US Treasury has been weighing sanctioning Tether because of the token’s alleged use by entities such as militant group Hamas and Russian arms dealers, according to the report.
In response to the latter article, a spokesperson for Tether Holdings earlier said that the company is unaware of any such US investigations and stressed the firm has “well-documented and extensive dealings with law enforcement to crack down on bad actors” who seek to misuse Tether and other tokens.
African Demand
Crypto executives said the use of USDT in Africa for export and import invoices is likely an important part of the time zone shift captured by the Chainalysis data. Tether touts the stablecoin as a way to make payments cheaply and quickly in emerging nations where US dollars can be in short supply.
“In Africa, we’re seeing an explosion of stablecoin usage,” said Ran Goldshtein, senior vice president of payments and network at custody service provider Fireblocks. Tether makes up about 80% of African stablecoin activity, he said.
In one example, Singapore-based TradeFlow Capital Management Pte trialled the use of USDT to smooth transactions with Rwandan agricultural enterprise Ingabo Plant Health. Ingabo’s Chief Executive Officer Patrick Senga plans to store its revenue in stablecoins to hedge against the volatility of the Rwandan franc. “On a personal level, I’ve stopped using Swift and bank transfers,” he said.
Dominant Stablecoin
Tether accounts for the bulk of the $176 billion stablecoin sector even though controversies have swirled around USDT for years. Its nearest rival is Circle Internet Financial Ltd.’s USDC, whose activity levels appear to peak in US hours as USDT use trails off, according to the Chainalysis data.
Stablecoin payments are still dwarfed by the trillions of dollars flowing daily via more conventional routes. Even so, rising engagement with the tokens is forcing officials to roll out dedicated rulebooks and step up oversight.
“Risk management at the intersection of digital currencies and payments can be complex,” said Angela Ang, senior policy adviser at consultancy TRM Labs. “Licit and illicit payments are often indistinguishable from each other without context. Identifying illicit transactions is likened to looking for a needle in a haystack. In payments, it’s more like looking for a needle in a stack of needles.”
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