Stablecoins, a new type of financial institution, are unique in two ways. First, they use decentralized databases like Ethereum and Tron to run their platforms. Secondly, and more important for the purposes of this article, they grant access to almost anyone, no questions asked.  I'm going to illustrate this openness by showing how Garantex, a sanctioned Russian exchange that laundered ransomware and darknet payments, has enjoyed almost continual access to financial services offered by stablecoin platforms like Tether and USDC throughout its six year existence, despite a well-known reputation as a bad actor.  Last month, law enforcement seizures combined with an indictment and arrest of Garantex's operators appear to have finally severed Garantex's stablecoin connection... or not. Evidence shows that Garantex simply rebranded and slipped right back onto stablecoin platforms.   Stablecoins' no-vetting model is a stark departure from the finance industry's default due diligence model, adhered to by banks (such as Wells Fargo) and fintechs (such as PayPal). We all know the drill—provide two pieces of ID to open a payments account. Requirements for businesses will probably be more onerous. Anyone on a sanctions list will be left at the door. Banks and fintechs must identify who they let on their platforms because the law requires it. By contrast, to access the Tether or USDC platforms, the two leading U.S. dollar stablecoins, no ID is required. Anyone can start using stablecoin payments services without having to pass through a due diligence process. Sanctioned customers won't get kicked off, as Garantex's long-uninterrupted access shows. Regulators seem to tolerate this arrangement—so far, no stablecoin operators have faced penalties for money laundering or sanctions evasion. A quick history of the Tether-Garantex nexus Garantex became notorious early on for its role in laundering ransomware payments. Russian ransomware gangs hacked Western firms, extorted them for bitcoin ransoms, and cashed out at Moscow-based exchanges like Garantex. Garantex also became a popular venue for laundering darknet-related proceeds, particularly Hydra, once the largest darknet market. Reports allege that the exchange's shareholders have Kremlin links and that terror groups Hezbollah and Quds Force have used it. Founded in 2019, Garantex was connected to Tether's platform by August 2020. We know this because an archived version of Garantex's website from that month show trading and payment services being offered using Tether's token, USDT. Archived Garantex.org trading page from March 2024 with USDT-to-ruble, Dai-ruble, and USDC-ruble markets [link] This connection to Tether allowed Garantex's customers to transfer their Tether balances to Garantex's Tether wallet, in the same way that a shopper might use their U.S. dollar account at PayPal to make payments to a business with a PayPal account. This allowed Garantex's users to trade U.S. dollars (in the form of Tether) on its platform for bitcoins or ether, two volatile cryptocurrencies, and vice versa. The Tether linkage also meant that Garantex could offer a market for trading ruble-USD. By April 2022, Garantex's bad behaviour had caught up to it: the exchange was sanctioned by the U.S. Treasury's Office of Foreign Asset Control (OFAC). U.S. individual and entities were now prohibited from doing business with Garantex. Out of fear of being penalized, most non-Russian financial institutions would have quickly severed ties with it. Yet Tether, based in the British Virgin Islands at the time, permitted its relationship with Garantex to continue without interruption. Archived copies of Garantex's trading page from mid-2022 and 2023 show that Tether-denominated services were still being offered. The Wall Street Journal reported in 2023 that around 80% of the exchange’s trading involved Tether, despite sanctions being in place. The net amounts were not small. According to Bloomberg, an alleged $20 billion worth of Tether had been transacted via Garantex post-sanctions. A 2024 Wall Street Journal report revealed that sanctions-evading middlemen used Tether to "break up the connection" between buyers like Kalashnikov and sellers in Hong Kong, with Garantex serving as their venue for acquiring Tether balances.  Finally, analysis from Elliptic, a blockchain analytics firm, alleges that Garantex offered USDT trading services to North Korean hacking group Lazarus in June 2023. This transaction flow is illustrated below: The Garantex/Tether nexus in 2023: Elliptic alleges that North Korean hackers stole ether from Atomic Wallet, converted it to Tether using a decentralized exchange 1inch, and then sent Tether to Garantex to trade for bitcoin. (Click to enlarge.) Source: Twitter, Elliptic Tether's excuse for not off-boarding sanctioned entities such as Garantex? A supposed lack of government clarity.  When Tornado Cash was sanctioned in 2022, for instance, the company said that it would "hold firm" and not comply because the U.S. Treasury had "not indicated" whether stablecoin issuers were required to ban sanctioned entities from using what Tether refers to as "secondary market addresses." Translating, Tether was saying that if bad actors wanted to use Tether's platform to transact with other Tether users (i.e. in the "secondary market"), it would let them do so. Tether's only obligation, the company believed, was to stop sanctioned users from asking Tether itself to directly cash them out of the platform into U.S. dollars (i.e. the "primary market"). This is quite the statement. Imagine if PayPal allowed everyone—including sanctioned actors—to open an account without ID and send funds freely within its system, only intervening when bad actors asked PayPal to cash them out into regular dollars. That was Tether's stance. Or if Wells Fargo let sanctioned actors make payments with other Wells Fargo customers, but only stopped them from withdrawing at ATM. Banks and fintechs can't get away with such a bare bones compliance strategy; they must do due diligence on all their users. But Tether seemed to believe that a different set of rules applied to it. In December 2023, Tether reversed course. It would now initiate a new "voluntary" policy of freezing out all OFAC-listed actors using its platform, not just "primary market" sanctioned users seeking direct cash-outs. This brought Tether into what it described as "alignment" with the U.S. Treasury. Soon after, Tether froze three wallets linked by OFAC in 2022 to Garantex. However, this action was largely symbolic. By the time Tether froze those wallets, Garantex had already abandoned them and opened new ones, thus allowing the exchange to maintain access to Tether's platform. Tether's no-vetting model permitted this pivot. Archived versions of Garantex's trading page show that it continued offering Tether services throughout 2024 and early 2025. The U.S. Department of Justice recently confirmed Garantex's tactic of replacing wallets in its March 2025 indictment of the exchange's operators. It alleges that Garantex frequently cycled through new Tether wallet addresses—sometimes on a daily basis—to evade detection by U.S.-based crypto exchanges like Coinbase and Kraken, which are legally required to block customer payments made to sanctioned entities. That the relationship between Tether and Garantex continued even after Tether's supposed 180 degree turn to "align" itself with the U.S. government is backed up by several reports from blockchain analytics firm Chainalysis. The first, published in August 2024, found that a large purchaser of Russian drones used Garantex to process more than $100 million in Tether transactions. The second describes how Russian disinformation campaigners received $200,000 worth of Tether balances in 2023 and 2024, much of it directly from Garantex. In a March 2024 podcast, Chainalysis executives allege that "a majority" of activity on Garantex continued to be in stablecoins. After years of regular access to Tether's stablecoin platform, a rupture finally occurred earlier this month when Tether froze $23 million worth of Garantex's USDT balances at the request of law enforcement authorities. The move came in conjunction with a seizure by law enforcement of Garantex's website and servers.  Garantex's website was seized in March 2025 by a collection of law enforcement agencies. In a press release, Tether claimed that its actions against Garantex illustrated its ability to "track transactions and freeze USDt." But if Tether was so good at tracking its users, why did it connect a sanctioned party like Garantex in the first place, and continue to service it for over four years? Something doesn't add up. Not just Tether: other stablecoins offered Garantex access, too Tether doesn't appear to have been the only stablecoin platform to provide Garantex with access to its platform. MakerDAO (recently rebranded as Sky) and Circle Internet may have done so, too. Circle, based in Boston, manages the second-largest stablecoin, USDC. When OFAC put Garantex on its sanctions list in April 2022, Circle was quick to freeze one of the designated addresses. It did no hold any USDC balances. However, like Tether, Circle's no-vetting policy means that it doesn't do due diligence on users (sanctioned or not) who open new wallets, hold USDC in those wallets, and use them to make payments within the USDC system. Circle only checks the ID of users who ask it to cash them out. Thus, it would have been a cinch for Garantex to dodge Circle's initial freeze: just open up a new access point to the USDC platform. Which is exactly what appears to have happened. On March 30, 2022, Garantex used its Twitter/X account to announce that it was offering USDC-denominated services. Beginning at some point in the first half of 2022, close to the time that the U.S. Treasury's sanctions were announced, Garantex began to list USDC on its trading page (see screenshot at top). The exchange's trading page continued to advertise USDC-denominated financial services through 2023, 2024, and 2025 until its website was seized last month.  Tether, Circle's competitor, proceeded to freeze $23 million worth of USDT on behalf of law enforcement authorities, as already outlined. However, respected blockchain sleuth ZachXBT says that Circle did not itself interdict Garantex's access to the USDC payments platform, alleging that "a few Garantex addresses" holding USDC had not been blacklisted. MakerDAO is a geography-free financial institution that maintains and governs the Dai stablecoin, pegged to the U.S. dollar. Archived screenshots show that Garantex added Dai to its trading list by September 2020, not long after the exchange had enabled Tether connectivity. According to blockchain analytics firm Elliptic, Russian ransomware group Conti has used Garantex to get Dai-denominated financial services. Garantex is able to access the Dai platform because MakerDAO uses the same no-vetting model as Tether. In fact, MakerDAO takes an even more hands-off approach than the other stablecoin platforms: it didn't seize any of the original 2022 addresses emphasized by OFAC. That's because Dai was designed without freezing functionality. Not vetting users is lucrative Providing financial services to a sanctioned Garantex would have been profitable for Tether and competing stablecoin platforms managed by Circle and MakerDAO.  All stablecoins hold assets—typically treasury bills and other short term assets—to "back" the U.S. dollar tokens they have issued. They get to keep all the interest these assets generate for themselves rather than paying it to customers like Garantex. If we assume an average interest rate of 5% and that Garantex maintained a consistent $23 million in Tether balances over the 34 months from April 2022 (when it was sanctioned) to March 2025 (when it was finally frozen out), Tether could have earned approximately $3.2 million in interest courtesy of its relationship.  Not only does their no-vetting model mean that stablecoin platforms get to earn ongoing income from bad actors like Garantex, this model also seems... not illegal? Stablecoin legal teams have signed off on the setup, both those in the U.S. and overseas. Government licensing bodies like the New York Department of Financial Services don't seem to care that licensed stablecoins don't ask for ID, or at least they turn a blind eye. (Perhaps these government agencies are simply unaware?) Nor has the U.S. Department of Justice indicted a single stablecoin platform for money laundering, sanctions violations, or failing to have a compliance program, despite it being eleven years now since Tether's no-vetting model first appeared. The model seem to have legal chops. Or not? Banks and fintechs are no doubt looking on jealously at the no-vetting model. Had either PayPal or Wells Fargo allowed Garantex to get access to their payments services, the punishment would have been a large fine or even criminal charges. Sanctions violations are a strict liability offence, meaning that U.S. financial institutions can be held liable even if they only accidentally engage in sanctioned transactions. But more than a decade without punishment suggests stablecoins may be exempt. This hands-off approach benefits stablecoins not only on the revenue side (i.e they can earn ongoing revenues from sanctioned actors). It also reduces their costs: they can hire far fewer sanctions and anti-money laundering compliance staff than an equivalent bank or fintech platform. Tether earned $13 billion in last year with just 100 or so employees. That's more profits than Citigroup, the U.S.'s fourth largest bank with 229,000 employees, a gap due in no small part to Tether's no-vetting access model.  The coming financial migration? Zooming out from Garantex's stablecoin experience, what is the bigger picture?  I suspect that a great financial migration is likely upon us. Financial institutions can now seemingly provide services to the Garantex's of the world as long as the deliver them on a new type of substrate: decentralized databases. If so, banks and fintechs will very quickly shift their existing services over from centralized databases to decentralized ones in order to take advantage of their superior revenue opportunities and drastically lower compliance costs.  This impending shift isn't from an inferior technology to a superior one, but from an older rule-bound technology to a rule-free one. PayPal recently launching its own stablecoin is evidence that this migration is afoot. The argument many stablecoins advocates make to justify the replacement of full due diligence with a no-vetting access model is one based on financial inclusion. Consumers and legal businesses in places such as Turkey or Latin America, which suffer from high inflation, may want to hold digital dollars but don't necessarily have access to U.S. dollar accounts provided by local banks, perhaps because they don't qualify or lack trust in the domestic banking system. An open access model without vetting solves their problem.       What about the American voting public? Do they agree with this migration? The last few decades have been characterized by a policy whereby the government requires financial institutions to screen out dangerous actors like Garantex in order to protect the public. Forced to the fringes of the financial system, criminals encounter extra operating dangers and costs. The effort to sneak back in serves as an additional choke point to catch them. To boot, the additional complexity created by bank due diligence serves to dissuade many would-be criminals from engaging in crime. Is the public ready to let the Garantexes back in by default? I'm not so sure it is. Tether is available at Grinex, a Garantex reboot. [link] Garantex's stablecoin story didn't end with last month's seizures and indictment. According to blockchain analytics firm Global Ledger, the exchange has been renamed Grinex and continues to operate. Tether services are already available on this new look-alike exchange, as the screenshot above reveals. Global Ledger says that $29.6 million worth of Tether have already been moved to Grinex as of March 14, 2025.  This is the reality of an open-access, no-vetting financial system: bad actors slip in, eventually get cut off, and re-enter minutes later—an endless game of whack-a-mole that seems, for now at least, to be tolerated. It will only get larger as more financial institutions, eager to cut costs, gravitate to it.

Today, in the Calculated Risk Real Estate Newsletter: Moody's: Q1 2025 Apartment Vacancy Rate Highest Since 2010; Office Vacancy Rate at Record High A brief excerpt: From Moody’s Analytics Economists: Q1 Moody’s CRE Preliminary Trend Analysis The national multifamily market has been under supply-side pressure over the past two years. Steady demand finally paused the vacancy climb after a banner year with record-level inventory growth. Average vacancy stalled at 6.3%, the highest since 2010. Moody’s Analytics reported that the apartment vacancy rate was at 6.3% in Q1 2025, unchanged from an upwardly revised 6.3% in Q4, and up from 5.8% in Q1 2024. This is the highest vacancy rate since 2010. This graph shows the apartment vacancy rate starting in 1980. (Annual rate before 1999, quarterly starting in 1999). Note: Moody’s Analytics is just for large cities. There is much more in the article.

There may be no winners of the game of Global Domination (tm), and that is likely the best outcome. Okay, players: jokers are wild, but with a twist: the entire deck is jokers. Since everyone at the table will have five Aces, nobody wins. Welcome to the Trade War Poker Table: nobody wins, as everyone has the same hand of jokers. This is not to say that exploitive, mercantilist "free trade" (no such thing has ever existed) is desirable, much less possible. We're reaping the consequences of what was passed off as "free trade": corporations gleefully gutted National Security to boost profits by offshoring everything that could be offshored. Every nation can impose tariffs or limit imports by other means. Tit for tat tariffs, concessions, grand deals, side deals--everyone has access to the same deck of cards. Who wins each round of play is an open question, as is who wins the game. There are several time-tested strategies in the game for Global Domination (tm). One is domination gained by exporting far more than you import, building up treasure in the form of vast trade surpluses. The problem with this strategy is eventually the nations being stripped by your mercantilist strategy wise up and limit your exports. There is only one way to get around this: military force, i.e. establish a Colonial Empire in which your colonies are forced to buy your surplus production (exports) via a bayonet in their back. Absent force and a colonial empire, mercantilism is eventually defeated by its own success. There is another way to play for Global Domination (tm), and it's the exact opposite of mercantilism: run large, sustained trade deficits by importing more than you export, which beneath the surface is a remarkable flow of trade: the importing nation "exports" its currency in size in exchange for goods and services. Once this currency is "exported" in sufficient quantities, it becomes the dominant currency simply from its ubiquity, its liquidity (i.e. its quantity and ubiquity make it easy to trade everywhere) and its trustworthiness due to its wide ownership across global markets: since the currency is spread across the globe, the issuing nation no longer controls its valuation; that's now set by the market. This is Global Domination (tm) via financing trade rather than by running trade surpluses by exporting tangible goods. Pick one, as you can't have both: either export goods to run mercantilist trade surpluses, and build up a trove of other nation's currencies, or "export" your own currency via sustained trade deficits so it becomes the global lingua franca of financing trade. Due to the demands of the Cold War, this was the U.S. strategy in the postwar era. As I have often explained, the U.S. was not merely in an arms race with the Soviet Union; it was also in a war for influence and alliances. The strongest adhesive in alliances is self-interest; by absorbing the surplus production of its allies in Europe and Asia in exchange for dollars, the U.S. cemented alliances that essentially encircled the Soviet Empire. This strategy was far more effective than open conflict, but it came with a cost. Just as the success of mercantilism generates its own undoing, so too does maintaining a reserve currency via trade deficits / exporting one's currency. Should the issuing nation (in this era, the U.S.) decide to limit imports and reduce its trade deficit, its currency will slowly lose the global scale needed to sustain its market dominance. This is Triffin's Paradox, which I've addressed many times over the years: any currency--and the system for creating and distributing the currency--has two masters it cannot possibly serve equally: the domestic economy and the global economy. Any nation that wants to control the valuation of its currency cannot possibly achieve global financial dominance, as the only way to gain and maintain global financial dominance is to surrender control of the currency's valuation to the market via exporting currency in such vast quantities that the global market sets the value. There's a profound irony in this. To manage the domestic economy, the state wants to control everything: the issuance of currency and its valuation via its relative abundance or scarcity, which is reflected in the cost of credit (i.e. interest rates) and asset prices. But to gain the high ground in the global financial landscape, the currency must serve the global demand for a currency that is ubiquitous, extremely liquid and trustworthy precisely because its value cannot be reset by state diktat. The valuation of a truly global currency is constantly influenced by interest rates, bond issuance, demand and so on--all the features of a transparent marketplace. The game of Global Domination (tm) will never be decided by a deck of jokers. The real game is 5-card draw: you play the cards you've been dealt by Nature, history, culture and chance. Every nation has a spectrum of strengths and weaknesses, advantages and disadvantages. Some are rich in resources, some are poor in resources. Some have advantageous geography, some less so. Some have cultural coherence, others have diversity; each is a strength and a weakness. In Nature, the winner is not necessarily the strongest or the one most blessed by chance. The winner tends to be the one with the greatest capacity and incentives for flexibility, experimentation, a level playing field (i.e. social mobility) decentralized capital and all the traits of fast adaptation: if not an appetite then at least a capacity for a continual churn of instability, failure and self-criticism, which are the necessary components of experimentation. There may be no winners of the game of Global Domination (tm), and that is likely the best outcome. Any form of dominance generates its own undoing. New podcast: The Coming Global Recession will be Longer and Deeper than Most Analysts Anticipate (42 min) My recent books: Disclosure: As an Amazon Associate I earn from qualifying purchases originated via links to Amazon products on this site. 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After the election in November 2016, I pointed out that the economy was solid, that there were significant economic tailwinds and that it was unlikely that Mr. Trump would do everything he said during the campaign. See: The Future is still Bright! and The Cupboard is Full.  I was pretty optimistic on the economic outlook! more concerned: "So far Mr. Trump has had a limited negative impact on the economy. ... Fortunately the cupboard was full when Trump took office, and luckily there hasn't been a significant crisis" (emphasis added).   Unfortunately, the COVID crisis struck in early 2020 and Trump performed poorly. Once again, the economy was in good shape at the start of Mr. Trump's 2nd term in 2025.  Just after the election, Fed Chair Powell said, "The recent performance of our economy has been remarkably good, by far the best of any major economy in the world."  And in December, Powell said the US economy is the "envy of other large economies around the world". In his 2nd term, Mr. Trump is being more aggressive with his economic plans.  At the same time, he is not benefiting from the tailwinds I described in 2016. Click on graph for larger image. The black arrows point to the start of Mr. Trump's terms in 2017 and 2025.  In early 2017 I was projecting further increases in housing starts.  Now I think housing starts will be down year-over-year and move more sideways over the next few years. Also, in 2016, demographics were improving, and the largest cohort in US history was moving into their peak earning years.  Now, demographics are more neutral, and possibly even negative if legal immigration is limited. The key tailwinds at the start of Mr. Trump's 1st term and now more neutral and even negative. And there are additional self-induced headwinds.  The tariffs are clearly negative for economic growth.  Goldman Sachs economists recently noted: Reflecting both the tariff news and a decline in our Q1 GDP tracking estimate to just 0.2%, we have also lowered our 2025 GDP growth forecast by 0.5pp to 1.0% on a Q4/Q4 basis (and by 0.4pp to 1.5% on an annual average basis). And - because of the rhetoric of the Trump administration (suggesting Canada should be the 51st state and the VP saying Denmark isn't a good ally (completely false and offensive) - there will be less international tourism to the US, and there is a growing international boycott of US goods. Of course, I don't expect any progress over the next four years on key long-term economic issues like climate change and income / wealth inequality (that will likely get worse). The US economy is resistant to policy mistakes, and I'm still not currently on recession watch.  However, I'm not sanguine.

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