A new report from blockchain analytics firm Chainalysis has shown a surge in stablecoin usage in Russia following the Russian invasion of Ukraine, which has since seen sanctions and inflation impacting the country. 

Released on Oct. 12, the report revealed that the share of stablecoin’s transaction volume on primarily Russian services increased from 42% in January to 67% in March following the invasion and has continued to increase since.

An anonymous expert on regional money laundering speaking to Chainalysis suggested that Russia’s removal from the cross-border system SWIFT is likely to see crypto being utilized for cross-border transactions, with stablecoins likely to be the preferred medium of exchange due to their price stability.

The report also suggests that some of the surge in stablecoin usage is likely due to ordinary Russian citizens trading the Ruble for stablecoins in order to protect the value of their assets, amid high levels of inflation since the war began.

“While some of that may be due to businesses embracing cryptocurrency for international transactions, it’s also likely that some of the increase is due to ordinary Russian citizens trading for stablecoins in order to protect their assets’ value, as we discussed previously,” the report noted.

Meanwhile, Chainalysis also noted in its finding that Eastern Europe had the highest share of risky crypto activity compared to any other region worldwide over the last year.

18.2% of cryptocurrency activity in the region is either “risky” or “illicit,” with Eastern Asia the next highest at 15% and Sub-Saharan Africa coming in third, though the latter had by far the largest share of illicit activity involving cryptocurrency. 

The firm defined risky activity as any transaction that involves an address associated with a risky entity, such as exchanges with low or no Know-Your-Customer (KYC) requirements. Meanwhile, illicit activity is defined as transactions associated with a known criminal entity.

Recent developments relating to crypto could further increase this number. The European Union recently banned crypto payments from Russians to European wallet providers, which could drive more cryptocurrency users to use lesser-known exchanges with no KYC requirements in order to get around the sanctions.

The report noted that crypto being used to work around sanctions means there needs to be more discussion on improving the effectiveness of sanctions but also highlighted the positive role crypto has had in facilitating donations to the Ukrainian cause, placing the current figure at over $65 million.

In prior research, Chainalysis noted that the prevalence of Russian cybercriminals was driving significant ransomware and cryptocurrency-based money laundering activity, noting:

“In particular, we’ve historically seen an outsized amount of ransomware and crypto-based money laundering in Eastern Europe, with the latter supported by a large ecosystem of risky cryptocurrency businesses.”