(Bloomberg) -- Tether was the most used stablecoin for criminal activity in crypto last year, a period when the overall volume of illicit transactions in the sector fell as more digital-asset outfits faced sanctions, according to TRM Labs.

The token known as USDT was linked to $19.3 billion of illicit transactions in 2023, down from $24.7 billion the previous year, blockchain analytics company TRM Labs said in a report and emailed responses to questions.

USDT dominated terrorist financing last year, according to the TRM report. USDT on Tron — a blockchain that stores more of the tokens than any other — “cemented its position as the currency of choice for use by terrorist financing entities” in 2023, TRM said. 

Tether is the world’s largest stablecoin, a type of cryptocurrency typically designed to hold a steady value of $1, backed by reserves of cash and bonds. Stablecoins are used to park funds between crypto trades and to participate in blockchain-based borrowing and lending. They also have a reputation as a medium for criminals seeking to skirt the traditional financial sector.

“While we don’t have access to the report, historical evidence repeatedly shows that transactional figures have often been exaggerated due to a misinterpretion of data that assumes that if a service receives some small portion of illicit funds then all funds in the service are illicit, significantly inflating the actual values,” a Tether spokesperson said in an emailed statement. 

Terror-Financing Related Addresses

The number of terror-financing related addresses on the Tron blockchain that received USDT rose by 125% in 2023, TRM said.

Tron — created by crypto entrepreneur Justin Sun — hosted 45% of all illicit flows last year, up from 41% in 2022, according to the report. The Ethereum digital ledger was responsible for 24% and the Bitcoin network for 18%.

Second-largest stablecoin USDC accounted for $428.9 million in illicit activity. Some 0.05% of USDC volume was linked to illicit flows in 2023, compared with 1.6% of Tether volume, according to TRM. USDC is issued by Circle Internet Financial Ltd.

Tron and Circle didn’t immediately respond to requests for comment.

The amount of USDT in circulation topped $100 billion for the first time earlier in March. The token has a near 70% share of the $150 billion stablecoin sector, according to DefiLlama data.

Tether has previously come under fire over USDT’s use in terrorism financing and human trafficking, particularly in Asia. It has also faced questions about its reserves. The firm has said it works with law enforcement and that regular attestations confirm reserves are in place.

Total illicit fund volumes in crypto fell to $34.8 billion in 2023 from $49.5 billion the year before, helped by a three-fold rise in sanctions against crypto-related business and individuals, according to the TRM report.

(Updates with Tether response in paragraph 5.)

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