Ethereum Network, the new dominant value transfer layer: Explanations and importance of AML policies

Driven by the growth of stablecoins, the use of the Ethereum network to transfer value reached a new record recently. Now, it seems Ethereum really starts to compete with Bitcoin for value transfers.

Monitoring the transactions for Anti-Money Laundering purposes is becoming increasingly important. First, because the volume traded has exploded, then because more and more jurisdictions put ETH transactions under the scope of AML/CTF regulations.

Ethereum Blockchain attracts more and more traders.

Last week, the total daily value transferred on the Ethereum network, including its own cryptocurrency (ETH), ERC-20 and stablecoins, reached an historic high with above 1.5 billion USD since its launch on 30 July 2015. Back in December 2018, the second-largest cryptocurrency had only 115 million USD in daily transactions.1

“Ethereum is becoming the dominant value transfer layer in crypto”, said Ryan Watkins, research analyst at the crypto-market data provider Messari.2

(Source: Messari.io)

Stablecoins trading is one of the main reasons to explain the surge in the Ethereum Network.

Since its launch in 2009, Bitcoin has always been considered as the world’s largest cryptocurrency by market cap. Now Ethereum is gaining more and more traction. One of the reasons might be the explosive demand for stablecoins over the past two years. Stablecoins trading plays a significant role in value transfer on the Ethereum network.

According to CoinMetrics, a few stablecoins appeared in high demand and have achieved double-digit, even triple-digit growth over the past 6 weeks: USD Coin (USDC) market capitalization has soared from $444 million $734 million with a 65% increase; tether (USDT) increased by 36% from $4.6 billion to $6.3 billion (read more about the most traded stablecoin here (https://blog.scorechain.com/how-to-implement-aml-risk-assessment-on-the-most-widely-traded-stablecoin-tether/); PAX grew 22% from $198 million to $258 million; GUSD saw the growth from $3.9 million to $6.2 million, up 6%. Last but not the least, the biggest winner BUSD issued with Paxos surged by 194% from $68 million to nearly $200 million!3

Watkins’ research also showed that issuance of stablecoins in Q1 2020 had exponentially grown to over $8 billion, almost as much as for all of last year.

The main reason for the popularity of stablecoins is that Ethereum network provides flexible token standards, which facilitates the creation of stablecoins and the issuance with compatibility and interoperability. Besides, the stablecoins are designed to be price-stable and not as volatile as Bitcoin, ETH or other cryptocurrencies, traders can minimize the fluctuation risk.

Why is it important to monitor Ethereum Blockchain activity for Anti-Money Laundering purposes and how can you achieve that?

As known by all compliance professionals in financial institutions or any cryptocurrency-related businesses, it is important to make sure that the companies operate in a compliant way to prevent money laundering and terrorist financing. With the rapid expansion of the Ethereum network, more and more jurisdictions put ETH transactions under the scope of AML/CTF regulations. 

– It is mandatory to keep records of transactions and to implement a risk-based approach; 

– The companies should perform transaction screening and monitoring; 

– The companies should keep and update the watchlist regularly.

Here is a non-exhaustive list of countries asking for such: The European Union, Australia, New Zealand, Japan, South-Korea, the United States, etc.

Besides, just like any other technology, when the adoption is becoming mainstream it attracts criminals and bad behaviours. That’s why it became a priority to monitor its activities and to conduct risk management to meet regulatory requirements.

To achieve the requirements, you need to keep in mind that most of the stablecoins can be traced via the Ethereum Blockchain analytics and it is necessary to implement a reliable monitoring solution. 

Scorechain Risk AML software can identify the origin and destination of ETH, ERC20 and stablecoins traded on the Ethereum network. 

(Source: Scorechain)

The software provides among others:

– unique risk scoring for addresses and transactions; 

– a robust reporting system which helps users to report to competent authorities; 

– a customisable scoring system which allows to apply customized internal control that fits compliance policies; 

– last but not least, a real-time alerts system to watch not only ETH, but also ERC20 and stablecoins.

(Source: Scorechain)

To know more about other powerful features of our product, welcome to contact us: contact@scorechain.com 

References:

1.https://medium.com/@fvptrade/ethereum-is-now-a-serious-challenger-to-bitcoin-for-daily-value-transfers-3ac840d1f518

2. https://www.coindesk.com/ethereum-now-matches-bitcoin-on-one-key-metric

3.https://www.coindesk.com/circle-ceo-claims-explosive-stablecoin-demand-from-everyday-businesses