The famous stablecoin issuer Tether and the blockchain forensics company Chainalysis have closed a partnership for Tether to improve the tools that it uses against money laundering.

The announcement that Tether will apply the token issuers’ Know Your Transaction tool from Chainalysis was made on Wednesday. By using this tool, the stablecoin issuer will be allowed to monitor transactions and to understand what risk every token holder presents.

Tether has issued the US dollar-pegged stablecoin USDT that is at the moment live on the Ethereum, Algorand, Omni, Liquid, EOS and TRON blockchains. Other tokens it has issued are the gold-pegged (XAUT), the Euro-pegged (EURT), and the Chinese yuan-pegged (CNHT). Here’s what Paolo Ardoino, the chief technology officer at Tether had to say about his company applying the Chainalysis’ tool:

“This solution allows us to ensure a secure compliance program that fosters trust with regulators, law enforcement agencies and users. This is achieved without sharing our user’s identifying information, as such data is only kept on our servers.”

While Tether didn’t talk that much about the reasons why it has made the decision to improve their compliance measures, things are very clear seeing as regulators from all over the world have started to send signals that stablecoins need to be scrutinized more deeply.

In October last year, Kenneth Blanco, the Financial Crimes Enforcement Network’s (FinCEN) director, said stablecoins won’t be exempt from AML laws’ compliance. Regulators categorize issuers of stablecoins as money service businesses (MSB) that should adhere to their specific regulatory standards.

While the money flow in and out of a stablecoin network is happening without any problem, regulators from all over the world have identified some serious risks associated with stablecoin transactions, so tracking the networks is very important. Tether can’t confiscate high-risk tokens, yet it does have the option to freeze the wallets containing them.

Since being created 5 years ago, Chainalysis has expanded. Now they offer tools and services not only to exchanges but also to financial institutions and even government agencies from 40 different countries in the world. In 2019, it won $5 million worth of contracts only from the US government.

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