There’s an unavoidable paradox at the heart of stablecoins’ growth story. The tokenized assets promise to modernize money by making dollars programmable, portable and instantaneous, yet their most compelling advantage may not be technical at all.
Instead, it may stem from something more prosaic, and potentially more controversial: the ability to move value through channels that ask fewer questions than the traditional banking system.
Financial regulation is expensive by design. Global banks spend billions annually on anti-money laundering (AML) programs, sanctions screening, and regulatory reporting. These costs are rarely visible to consumers, but they shape everything from wire fees to onboarding timelines.
Stablecoin ecosystems shift where those costs reside. Exchanges and regulated issuers perform know-your-customer when users convert fiat into tokens. But once assets enter the blockchain, transactions between self-custodied wallets occur outside of regulated financial institutions.
As the Monday (Feb. 23) news that the crypto exchange Binance facilitated $1.7 billion in digital asset transfers to sanctioned actors in Iran reveals, the technical architecture of blockchain can create a compliance air gap. While the regulated edges of the digital asset ecosystem may remain tightly controlled, the activity inside can resemble bearer instruments moving across a public network.
The emerging concern for institutional stakeholders weighing a stablecoin strategy is no longer whether stablecoins are faster or cheaper. In many contexts, they clearly are. The deeper issue is why that’s the case, and whether those reasons can prove to be sustainable once regulatory expectations catch up with crypto’s technological possibility.
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See also: The Governance Problem Stablecoins Weren’t Built to Solve
Architecture of Frictionless Dollars
Unlike bank deposits, which require intermediaries to reconcile accounts and manage settlement windows, stablecoins can be transmitted peer-to-peer between wallets without relying on the legacy plumbing of correspondent banks.
That design has undeniable efficiency benefits. A payment sent from Singapore to São Paulo via stablecoins can settle in minutes rather than days, without FX spreads or intermediary fees stacking along the way. For companies operating across emerging markets, the ability to hold and transfer dollar-denominated value outside local banking systems can feel transformational.
In countries with capital controls, unstable currencies, or limited correspondent banking access, stablecoins can function more like shadow dollarization. Businesses use them to pay suppliers. Freelancers accept them to avoid conversion losses. Importers rely on them when local banks cannot reliably clear international payments.
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But for sanctions regulators accustomed to chokepoints like Swift messaging or correspondent banks, blockchain-based value transfer presents a structural challenge. There is no central operator to compel, no single ledger to freeze, and no guarantee that participants fall under the same jurisdictional umbrella.
The industry still hasn’t found a solution to prevent criminals from exploiting the technology, and until it does, expanding access without enhanced guardrails mostly expands harm, Andrew Balthazor, associate and co-lead of the crypto asset disputes team at Holland and Knight LLP, told PYMNTS during a discussion for the latest “From the Block” podcast with PYMNTS CEO Karen Webster and Citi Global Head of Digital Assets for Treasury and Trade Solutions Ryan Rugg.
See also: Behind the Stablecoin Buzz, Old-School Infrastructure Still Runs the Show
Technology Versus Regulatory Arbitrage
The very utility of stablecoins raises difficult policy questions. If adoption is driven partly by the absence of compliance friction, reintroducing those controls could erode the efficiency gains that made stablecoins attractive in the first place.
If stablecoins become subject to the same identity verification, transaction monitoring, and reporting obligations as banks, they may lose part of their speed and cost advantage. But if they remain structurally outside those frameworks, they risk becoming parallel financial systems that complicate enforcement of laws.
“Sanction evasion by a nation-state at scale can hit tremendously large volumes,” Eric Jardine, head of research at Chainalysis, told PYMNTS, adding blockchain finance did not suddenly become more criminal but rather more geopolitically relevant.
An estimated $154 billion in cryptocurrencies flowed to illicit addresses in 2025, the highest total on record and a 160% jump in illicit volumes, Jardine added.
The financial industry has seen this pattern before. Innovations that appear purely technological can often succeed because they exploit regulatory asymmetries rather than because they deliver overwhelming efficiency improvements. Money market funds, offshore banking centers, and certain early FinTech payment platforms all scaled rapidly in spaces where oversight rules were lighter or differently applied.
The PYMNTS Intelligence and Citi report “Chain Reaction: Regulatory Clarity as the Catalyst for Blockchain Adoption” found that blockchain’s next leap will be shaped by regulation; that evolving guidance is beginning to create the foundations for safe, scalable blockchain adoption; and that implementation challenges continue to complicate progress.