Destabilising the Stable: How Stablecoins Are Perfect for Fraudsters

Why It Matters

Stablecoins’ rapid expansion creates a fertile ground for money‑laundering and undermines central banks’ policy tools, making timely, balanced regulation essential for market integrity and financial stability.

Key Takeaways

• Stablecoins market reached $300 billion, growing exponentially and attracting mainstream crypto traders worldwide
• 24/7 trading bypasses traditional banking oversight, enabling fraud
• DeFi swaps using stablecoins mask token risk, misleading users
• Regulatory gaps risk monetary policy effectiveness and stability
• Principles‑based regulation favored over strict rules to preserve stability

Summary

The interview on Finextra TV examines why stablecoins—digital assets pegged to fiat currencies—have surged to roughly $300 billion in market value and why that growth is attracting fraudsters. Professor Andros Gregoriou explains that their perceived stability and 24‑hour liquidity make them an attractive bridge between crypto trading and traditional finance.

Gregoriou highlights three core risk vectors. First, stablecoins serve as market‑making tools, allowing traders to swap fiat‑linked tokens around the clock, sidestepping the stricter oversight of banks. Second, DeFi exchanges use stablecoins as the default swap medium, giving users a false sense of safety while the underlying token still carries volatility and liquidity‑pool exposure. Third, payment‑layer ambitions clash with blockchain throughput limits—roughly ten transactions per second versus hundreds of thousands for SWIFT—prompting off‑chain workarounds that obscure transaction trails.

The discussion cites USDC and Tether as the dominant players, together accounting for about 99 % of stablecoin volume. While USDC operates under a stringent, accounting‑style regulatory regime, Tether, governed by a different jurisdiction, has maintained its one‑to‑one peg despite criticism. Gregoriou warns that algorithmic or commodity‑backed stablecoins introduce even greater price instability, reinforcing the need for careful oversight.

For regulators, the challenge is to craft principles‑based frameworks that curb financial‑crime opportunities without stifling the financial‑inclusion benefits DeFi promises. Over‑regulation could impair monetary‑policy tools and destabilize the peg, whereas lax oversight may embolden illicit actors. The upcoming FCA proposal signals a tentative move toward that balance, underscoring the urgency for coordinated global standards.

Original Description

Once again, joining FinextraTV to talk about stablecoin development, Professor Andros Gregoriou, Head of REF, Liverpool Business School, Liverpool John Moores University provided his opinion on their use within financial crime. Gregoriou explains how the industry has grown exponentially and how, with this growth, the risk is lower both for regular investors and criminals. When it comes to 24/7 trading on a crypto exchange, Gregoriou describes how these provide even more risks: where later times in a relaxed sector provided ample space for vulnerability. He emphasises how Stablecoins are not just inherently risk-free,

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