Introducing Sentinel: Ensuring Safe and Compliant Markets for Token Issuers

TL;DR

1. Chainalysis is launching Sentinel, an ecosystem monitoring solution designed to assist token issuers in managing compliance risks and ensuring a safer market environment for stablecoins and other tokenized assets.
2. Why now? Stablecoins are becoming pivotal in the crypto market, accounting for over 80% of transactions, and offering a bridge to traditional financial markets. Major stablecoin issuers like Tether and Circle have substantial U.S. Treasury holdings.
3. There’s a growing momentum for stablecoin regulation globally. From Japan to the United Arab Emirates to the European Union (EU), governments are advancing legislation to ensure compliance and protect users, with key issuance approvals already granted under the EU’s MiCA regulation. Stablecoin issuers also face increasing liability, with stablecoins taking a significant share of illicit transaction volume.
4. Sentinel offers extensive features for compliance monitoring, including real-time alerts for illicit activities, automated freezing of suspicious addresses, and integration with Chainalysis KYT to create a comprehensive compliance strategy for token issuance and redemption.

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Since 2014, Chainalysis has been developing the industry’s leading blockchain intelligence dataset, and has gained deep experience working with token issuers and policymakers alike.

We’ve long believed that blockchains will become the primary mechanism for exchange of value, from tokenized securities to tokenized investments products to stablecoins, and more. To further instill trust and safety to cryptocurrency markets, it’s time to serve token issuers. These organizations need a way to assess risk for immediate primary issuance and redemptions, as well as reliable methods for understanding how their tokens are used across blockchain ecosystems, referred to as secondary markets.

Today, we’re pleased to announce Sentinel, our ecosystem monitoring solution for token issuers. In this blog, we’ll discuss why the time is right for this offering, and share a sneak peek into Sentinel’s features.

Ecosystem monitoring is necessary to safely grow stablecoin adoption

Over 80% of all crypto transactions involve stablecoins. But stablecoins are not only relevant to crypto markets, they’re an important bridge to traditional financial markets, too. Tether, the issuer of USDT, and Circle, the issuer of USDC, are notable U.S. Treasury holders. Tether was the seventh largest acquirer of U.S. Treasuries across countries in 2024. As of December 2024, it had over $113B in direct and indirect holdings of U.S. Treasuries, more than some G20 countries, like Germany.

Stripe, a leading payment processor, recently acquired Bridge, a platform that allows businesses to easily receive, store, convert, issue, and spend stablecoins. Zach Abrams, co-founder of Bridge, acknowledged on X, “We closed our acquisition with Stripe! Together, we’re scaling digital dollars to businesses everywhere. Stablecoins aren’t the future—they’re already transforming how people move money today.”

Stablecoin regulation is progressing steadily and globally

Policy momentum around stablecoins is increasing. “It’s evident that governments are recognizing both the benefits and risks from growing stablecoin usage, and this is motivating them to push forward on regulation,” Chengyi Ong, Chainalysis Head of Policy for APAC. Jurisdictions like Japan, the UAE, and the EU have all implemented stablecoin legislation, while others like Hong Kong and Singapore are also in advanced stages.

Authorizations are being granted under these frameworks, including Circle, which has been authorized under the EU’s Markets in Crypto Assets (MiCA) regulation to issue USDC and EURC, and in July 2024, Paxos gained approval from the Monetary Authority of Singapore to issue stablecoins in partnership with DBS Bank.

The U.S. government has also said it would like to see stablecoin legislation circulating by August of this year.

Stablecoin issuers face increasing liability

Chainalysis research from the 2025 Crypto Crime Report shows that stablecoins now make up the majority of all illicit transaction volume, accounting for 63% of all illicit transactions. “This new reality is part of a broader ecosystem trend in which stablecoins also occupy a sizable percentage of all crypto activity, demonstrated by total growth YoY in stablecoin activity around 77%,” according to the report.

Both regulators and issuers are not powerless against the illicit use of stablecoins. Leading issuers such as Tether have been taking active measures to combat on-chain crime. Tether has frozen nearly $2B USDT to date. In one notable case, Chainalysis assisted in Tether’s proactive freeze of approximately $225 million in self-custodied wallets tied to a human-trafficking syndicate. Additionally, our solutions have helped Israeli authorities disrupt cryptocurrency-based terrorism financing by Iran’s Qods Force and Lebanese Hezbollah, resulting in the seizure of approximately $1.7M USDT.

Beyond stablecoins: Tokenized securities and real-world assets gain traction

While stablecoins are in the spotlight, financial institutions, governments, and other entities are also issuing other types of tokens, from meme tokens to tokenized securities and real-world assets (RWA). Here are just a few examples:

1. Ondo Finance is a leading RWA platform with approximately $1B total value locked (TVL). Their products include USDY for USD yields, OUSG for exposure to short-term U.S. treasuries with 24/7 instant minting and redemption, and options to borrow and lend against U.S. treasuries and stablecoins.
2. Robinhood, a leading stock trading platform, has expressed interest in offering tokenized securities. Tokenization can provide a frictionless, high-speed, 24/7, and potential self-custody method for retail investors to access securities globally.
3. The State of Wyoming is also planning to issue a dollar-backed stablecoin, WYST, which would be the first fully-reserved, fiat-backed stablecoin issued by a public entity in the U.S.
4. Organizations across the world are using ERC-3643, the RWA token standard for the Ethereum network, to create tokenized assets in industries like real estate, finance, gaming, and more.

Sentinel: A comprehensive view for token issuers to monitor illicit activity and ensure compliance

Sentinel helps token issuers monitor their ecosystem with confidence by analyzing risk exposure across more than 35 categories. We built Sentinel with a wide range of functionality that scales with a token issuer’s maturity and specific needs in mind. A new business launching its first stablecoin or an established issuer with a multi-billion-dollar market cap can leverage Sentinel to stay ahead of illicit activity and comply with regulators globally.

Here’s a sneak peek of Sentinel capabilities:

•  Gain a macro-level understanding of trends. Start by reviewing high-level trends of your token’s ecosystems, discovering all activity on your platform by understanding the types of actors holding your token and narrowing in on activity of interest.

• Create alerts on activity of interest and manually freeze funds. After learning about the types of activity in your token’s ecosystem, configure alerts for review and transfer-level reporting, and manually take action if needed.

•  Set up automated freezing and blocklists. For more advanced workflows, issuers can automatically freeze or block addresses with integrated alerts via API.

A comprehensive compliance strategy: Combining Sentinel’s ecosystem monitoring with Chainalysis KYT for token issuance and redemption

Issuers can also pair Sentintel for ecosystem monitoring with KYT to assess risk for immediate token issuance and redemption.

When sending funds to or receiving them from a counterparty, KYT helps users understand the risks associated with the source and destination of funds on-chain. This includes transaction-level analytics that enable detection and alerting of suspicious activities, ensuring compliance by identifying high-risk behaviors and entities.

By leveraging both KYT for primary issuance and redemption and Sentinel for secondary market activity, organizations can achieve a comprehensive compliance strategy. This integration helps token issuers identify potential threats at both the individual transaction level and within the broader context of asset markets, facilitating a more informed approach to risk management.

Learn more about Sentinel, see it in action, or reach out to your account team if you’re already a customer.