Recent reports indicate that Russia has been increasingly using the crypto stablecoin Tether (USDT) in international transactions in a bid to circumvent Western sanctions. USDT is a preferred cryptocurrency for these kinds of trades due to its peg to the US dollar and very low transaction costs compared to traditional banks. Meanwhile, there is a probability that, as stablecoins get wider regulatory acceptance, deals involving this type of crypto might become more widely spread.

Circumvention of sanctions

Cut off from the SWIFT global payments network and lacking access to the US dollar, some Russian entities have turned to cryptocurrencies to transfer money abroad, while the central bank has permitted businesses to use digital assets for international trade.

According to recent reports, Russia has actively used crypto, primarily Tether, to facilitate oil transactions with China and India. This approach allows for the conversion of Chinese yuan and Indian rupees into Russian rubles, thereby bypassing traditional financial institutions restricted by sanctions slapped on Russia following the February 2022 invasion of Ukraine.

Reportedly, unspecified Russian oil companies used crypto to "smooth the conversion of Chinese yuan and Indian rupees to Russian rubles." Incidentally, other countries facing sanctions in international trade, such as Iran and Venezuela, are believed to be using cryptocurrencies to avoid the US dollar in energy transactions.

The exact size of crypto transactions between Russia and India and China is unknown, but reports suggests it could amount to "tens of millions of dollars per month." This figure may look small compared with the total size of Russia's energy sales, but it underscores a major strategic move to sustain economic activities despite international constraints.

Meanwhile, reportedly, the use of Tether has extended beyond oil transactions. Russian entities have employed this stablecoin to procure high-tech equipment, including components for drones, by evading US sanctions. Middlemen have facilitated these transactions by converting large sums of cash into Tether, enabling the acquisition of sanctioned goods.

 

Why Tether?

Various types of crypto are believed to be used in international trade deals between Russia and other countries. However, the use of the most popular cryptocurrencies, such as Bitcoin or Ethereum, in settling international trades could be problematic due to these cryptos’ high volatility.

For instance, Bitcoin has in recent weeks lost more than 20% since its all-time high of $106,154.15, reached in late January, while Ethereum's losses have been even more pronounced.

Unlike Bitcoin or Ethereum, stablecoins, such as Tether, are pegged to the US dollar, meaning their exchange rate to the US dollar is always the same and one USDT could always be exchanged for one US dollar. This parity is achieved by maintaining a substantial collateral. As of August 1, 2024, Tether reported reserves totalling $118.4bn, with $5.3bn in excess reserves. Introduced in 2014 by Tether Limited, USDT has been able to maintain its 1:1 peg to the US dollar to date, which makes it an attractive prospect for various trades and transactions.

Another important advantage of USDT is its cheap transactions. For instance, transferring 100,000 USDT on the TRON network incurs an almost negligible fee of under US$1.

 

Can Tether react?

One natural question that arises is whether these USDT transactions involving Russia and other countries buying its energy supplies are in violation of the existing sanctions against Russia. Technically they are not, as nothing legally stops India or China from buying Russian oil. Problems occur when payments have to involve Western financial institutions banned from dealing with Russian entities.

But there are no restriction on trades paid in crypto, as one of crypto's advantage is its anonymity. A USDT transaction involves only two crypto addresses, that of the sender and that of the recipient, and finding out to what real-world entities these addresses are linked is a challenge. Billions of USDT are moves between various addresses, and tracing an address to a Russian oil company or a Chinese buyer is problematic.

As long as stablecoins don't leave the crypto infrastructure and entities involved in deals are careful enough not to link their crypto addresses to real-world data that could reveal their identity, a deal could remain totally anonymous. Say a Russian entity receives a payment in USDT for oil sold to a Chinese buyer, and these stablecoins are subsequently used to pay for drones purchased in Iran; there would be a very slim chance to know that this deal has actually occurred.

However, when exchanges are involved – for swapping between various crypto or for swapping crypto for regular – fiat – money – a deal can become traceable and sanctions might apply.

One recent example is the recent sanctioning of the Russian cryptocurrency exchange Garantex, which processed significant transactions involving Tether, by the US and European authorities. Due to the sanctions, Tether had to blocked wallets associated with Garantex, leading to the suspension of its services. In early March, Tether blocked Garantex digital wallets holding more than RUB2.5bn ($28mn).

The European Union included Garantex in its 16th sanctions package against Russia over the conflict in Ukraine on February 24, accusing the crypto exchange of being closely associated with EU-sanctioned Russian banks and responsible for circumventing EU sanctions. Earlier, the United States called Garantex a "ransomware-enabling virtual currency exchange," accusing it of allowing its systems to be abused by illicit actors.

 

Stablecoins as a future of payments?

The role of stablecoins in Russia's internal trade may grow regardless of further sanction developments. Certainly, if the existing sanctions are not lifted and, especially, if that sanction pressure increases, Russia's demand for alternative payment methods will go up.

But even if the sanction pressure subsides, the ease and cheapness of settlements in stablecoins have already proven to be major advantages.

Meanwhile, steps have been made in the US towards adopting the Guiding and Establishing National Innovation for US Stablecoins (GENIUS), which, observers say, could contribute to the wider use of stablecoins globally.

This legislation proposes a dual regulatory system, allowing stablecoin issuers to choose between federal or state-level oversight, thereby balancing innovation with consumer protection.

Over the last year or so, authorities and financial institutions in the US and elsewhere have noticed the attractiveness of stablecoins, as they promise 24/7 instant payments, anywhere in the world, for lower costs than traditional financial systems. However, issuers and custodians still need to partner with financial institutions to hold reserves and access federal payment systems like wire transfers.

As of March 2025, the GENIUS Act has progressed through the Senate Banking Committee with bipartisan support, marking a significant step toward its potential enactment. Industry experts anticipate that comprehensive stablecoin legislation could be finalised in the coming months, reflecting the US government's urgency to maintain the US dollar's dominance in digital financial activities.

In this scheme, Russia's deals financed with stablecoins could also obtain more legitimacy.