The war in Ukraine has affected the world in several ways, which include rising gas and food prices as well as increased political activism. It has also affected Russia’s economy negatively, with Russian investors scrambling to protect their assets.
Following the Russian invasion of Ukraine, which was followed by sanctions and inflation that affected the nation, a recent analysis from blockchain analytics company Chainalysis has revealed a rise in stablecoin adoption in Russia.
The report, which was published on October 12, showed that since the invasion, stablecoin’s transaction volume on mainly Russian services had climbed from 42% in January to 67% in March.
Price Stability Concerns During the War
Stablecoins are likely to be the favored form of trade because of their price stability, according to an anonymous expert on regional money laundering who spoke to Chainalysis. This is because of Russia’s exclusion from the SWIFT cross-border system.
Share of transaction volume on predominantly Russian crypto services by asset type, from July 2021 to August 2022. Source: Chainalysis.
According to the report, a portion of the rise in stablecoin usage may be because of regular Russian people who exchanged their Rubles for stablecoins to preserve the value of their possessions in the face of the country’s high inflation rate since the war’s start.
Eastern Europe tops ‘Illicit Crypto Activities’ List
The report justifies the traffic towards stablecoins by pointing out that over the past year, Eastern Europe has had the largest proportion of dangerous crypto activity worldwide. Across Eastern Europe, 18.2% of cryptocurrency activity is “risky” or “illicit,” with Eastern Asia having the next-highest percentage (15%) and Sub-Saharan Africa coming in third, despite having by far the biggest percentage of illicit cryptocurrency activity.
Chainalysis characterized “risky activity” as any transaction with an address connected to a risky entity, such as exchanges with minimal or no Know-Your-Customer (KYC) standards. Contrarily, transactions linked to a recognized criminal entity are referred to as unlawful conduct.
Share of risky and illicit crypto activity for different regions from July 2021 to June 2022. Source: Chainalysis.
Illicit Crypto Activities Could Surge
Recent developments in the crypto industry may see a surge in illicit crypto activities. The recent sanctions imposed by the European Union on cryptocurrency payments made by Russians to European wallet providers may encourage more cryptocurrency users to utilize less well-known exchanges that don’t require KYC in order to circumvent the restrictions.
The report noted that the use of cryptocurrency to circumvent sanctions indicates the need for further discussion about increasing the effectiveness of sanctions, but it also highlighted the beneficial role cryptocurrency has played in facilitating donations to the Ukrainian cause, with the current total standing at over $65 million.
Prior studies by Chainalysis found that a large amount of ransomware and cryptocurrency-based money laundering activities were being driven by Russian cybercriminals. This calls for an in-depth look into how the cryptocurrency ecosystem can survive the war in Ukraine without having to deal with many malicious exploits seeking to steal funds from account holders.
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