Crypto World
BIS exposes how stablecoins are slipping past capital controls
BIS researchers have found that dollar-backed stablecoin inflows across more than 130 economies remain largely unaffected by capital controls, exposing a growing challenge for emerging-market governments.
Summary
- BIS found stablecoin inflows remain largely unaffected by capital controls across more than 130 economies.
- Dollar-backed tokens are expanding in emerging markets facing inflation, weak currencies and limited foreign exchange access.
- Nigeria and Latin America show growing stablecoin use for remittances, trade settlement and cross-border payments.
The BIS study compared stablecoin inflows with foreign-currency bank deposits to examine how households and businesses gain exposure to the U.S. dollar during periods of financial stress. Both forms of dollarization increased alongside sovereign crises, banking problems and strong exchange-rate pass-through, but only traditional deposits responded clearly to restrictions on foreign currency and capital flows.
Unlike bank deposits, dollar-pegged tokens can move through crypto exchanges, peer-to-peer markets and self-hosted wallets without passing through domestic banks. According to the researchers, this difference likely exists because “stablecoins are partly circulating outside the regulatory perimeter.”
The results indicate that restrictions designed for bank accounts may have limited influence over digital tokens. While governments can require approval for foreign-currency deposits or restrict transfers through financial institutions, users can still receive, hold, and send stablecoins through blockchain networks.
Researchers also found that deposit and stablecoin dollarization tend to persist once established. Their analysis showed little evidence that users simply replace foreign-currency deposits with stablecoins, suggesting the two channels can expand at the same time instead of competing for the same demand.
Capital controls are failing to contain stablecoin demand
Dollar-pegged tokens could weaken monetary sovereignty if households and companies increasingly store or transact in U.S. dollars outside regulated banks, the BIS study warned. The risk is more pronounced in emerging and developing economies where inflation, currency depreciation or restricted access to foreign exchange makes dollar assets attractive.
Capital controls have historically reduced some forms of deposit dollarization because banks must enforce domestic rules. Stablecoin inflows, however, were broadly similar in economies with and without such restrictions, according to the BIS.
Digital tokens have bearer-like features and can be transferred through unhosted wallets, making complete enforcement difficult. The BIS Annual Economic Report 2026 noted that blocking domestic intermediaries from handling unapproved stablecoins may limit some transactions, but such measures are likely to remain imperfect.
Despite the concern over monetary sovereignty, the study found little evidence that moderate deposit dollarization materially weakens monetary-policy transmission. Economies with higher foreign-currency deposits did, however, show a somewhat higher risk of elevated inflation.
Stablecoins may present different policy problems because their use can extend beyond savings into payments, trade settlement and remittances. As transactions leave the banking system, authorities may also lose access to information normally collected by regulated financial institutions, limiting their view of capital movements.
The BIS findings suggest policymakers may require controls designed for blockchain-based assets rather than relying only on rules created for bank deposits. Any response would need to account for foreign exchanges, peer-to-peer transfers and self-hosted wallets, all of which can keep activity outside domestic financial channels.
Emerging markets are driving stablecoin payment adoption
Nigeria illustrates how economic pressure can push stablecoins into daily financial activity. The International Monetary Fund found that stablecoins accounted for more than 65% of the country’s cross-border crypto inflows in 2024, with total inflows approaching the value of recorded remittances by 2025.
According to the IMF, Nigerian households use USDT and USDC for family remittances, crypto investments and access to dollar-denominated value. Small and medium-sized importers have also used the tokens to pay foreign suppliers, while some large companies have tested them for trade settlement.
Inflation, naira depreciation and limited access to foreign currency made stablecoins more attractive during 2023 and 2024, the IMF reported. When the Central Bank of Nigeria restricted banks from serving crypto users in 2021, activity moved toward less regulated peer-to-peer markets instead of disappearing.
Stablecoins can cut payment time and reduce dependence on correspondent banks, according to the IMF. However, the institution warned that heavy use of dollar tokens could lower demand for the naira and move more transactions beyond the reach of Nigerian regulators.
A similar pattern has emerged in Latin America. Bitso Business reported an 81% year-over-year increase in stablecoin payment volume during the first half of 2026. The company also found that Tether’s USDT and Circle’s USDC represented 40% of regional crypto purchases in 2025, overtaking Bitcoin for the first time.
Across the crypto market, stablecoin capitalization has risen to about $309.7 billion from roughly $260 billion a year earlier. The increase gives dollar-backed tokens a larger role in payments and savings while adding urgency to the regulatory concerns identified by the BIS.
BIS research has also separated privately issued stablecoins from tokenized bank money. Through Project Agorá, eight central banks and more than 40 regulated institutions have tested cross-border settlement using tokenized commercial-bank deposits and central-bank reserves, according to the institution’s 2026 report.
That model keeps tokenized payments inside a regulated two-tier banking system, while stablecoins can circulate beyond it. For policymakers, the contrast explains why existing capital controls may struggle to contain digital dollarization even as demand for faster cross-border payments continues to grow.
Blockchain security firms linked the collapse to a suspected attack on 42DAO, the decentralized organization that governs the Balance Protocol ecosystem.
The war against Iran has run up a heavy bill for the United States, now pegged at $37.5 billion.
The estimate, delivered by Defense Secretary Pete Hegseth, arrives as US strikes on Iran continue for an 11th straight night.
US Defence Secretary Puts Iran War Cost at $37.5 Billion
Hegseth presented the figure to the Senate Appropriations Committee on Tuesday. He said the $37.5 billion covered certain aspects of the war plus anticipated costs through September 30.
Cost estimates have risen sharply since the conflict. Reuters reported in March that the administration valued the first six days of fighting at a minimum of $11.3 billion.
The latest $37.5 billion figure sits roughly $12 billion above the $25 billion estimate Hegseth gave in late April. He offered that number just before Trump brokered a temporary ceasefire with Iran.
The administration is also pressing for more money. In late June, it asked Congress for $87.6 billion in extra funding.
The New York Times reported that as much as $70 billion of that would go to emergency military spending. The funds would cover war costs and pay for new weapons and personnel.
The Pentagon wants $46 billion to expand munitions production. That includes precision bombs, hypersonic missiles, and counter-drone systems.
“This is a new request based on new realities of a world we face, stepping up to meet that moment,” Hegseth stated.
Ordinary Americans are absorbing costs too. Brown University’s Watson Institute estimates that higher gasoline and diesel prices have added $71.8 billion in consumer spending since the war began. That works out to about $548 per US household.
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US-Iran Ceasefire Proposal Lands as Strikes Hit 11th Night
Diplomacy has run in parallel with the fighting. A senior Iranian official told Reuters on Monday that mediators had handed Tehran a de-escalation proposal.
The plan floats a 10-day ceasefire. The pause would create room to revive an interim deal struck last month.
Those talks have not slowed the strikes. CENTCOM said it finished its 11th consecutive night of operations against Iran on Tuesday evening.
According to CENTCOM, the strikes hit military command centers, aircraft hangars, drone storage sites, and naval assets. The stated goal is to blunt threats to shipping in the Strait of Hormuz.
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The post How Much Has the Iran War Cost the US? Defence Secretary Puts a Number on It appeared first on BeInCrypto.
Aztec has launched the alpha version of its v5 execution layer, introducing a programmable privacy framework that allows Ethereum applications to process both public and private state within the same layer-2 environment.
Summary
- Aztec has released the alpha version of its v5 execution layer, bringing programmable privacy to Ethereum through zero knowledge powered smart contracts.
- The new architecture processes private computations on user devices while verifying transactions on chain without exposing sensitive data.
- Aztec said the execution layer supports confidential decentralized applications with features designed to reduce front running and MEV risks.
Aztec Labs announced the alpha release of its v5 execution layer, describing it as a step toward making privacy-native smart contracts practical on Ethereum.
The new architecture allows developers to build decentralized applications that combine confidential user data with public blockchain state while relying on zero-knowledge proofs to verify transactions without exposing sensitive information.
Unlike Ethereum’s base layer, where every validator processes and stores transaction inputs, outputs, and execution data to reach consensus, Aztec’s execution layer moves private computation to the user’s device. Instead of revealing transaction details to the network, the system generates cryptographic proofs locally before submitting them for verification on-chain, reducing the amount of visible transaction data while preserving Ethereum’s security guarantees.
Client-side execution changes how private transactions are processed
At the center of the release is a client-side zero-knowledge execution engine integrated with Noir, Aztec’s domain-specific programming language for private smart contracts. Rather than executing confidential transactions across every network node like the Ethereum Virtual Machine, the system performs private computations on user hardware before generating recursive Succinct Non-Interactive Arguments of Knowledge, or SNARKs.
Those proofs allow the network to verify that state changes are valid without exposing plaintext inputs, transaction values, or account identities. According to Aztec Labs, the model cuts unnecessary data disclosure while maintaining mathematical guarantees that transactions have been executed correctly.
The architecture also introduces a hybrid state model designed to overcome one of the biggest engineering challenges facing privacy-focused blockchains. Purely private execution environments often struggle when multiple users attempt to update the same public state at the same time, creating state contention that limits interaction with shared decentralized finance infrastructure.
To address that limitation, Aztec separates private and public state management. Private assets are stored in UTXO-like note trees, while public data is maintained through key-value trees. During execution, private functions can generate deferred public function calls that are processed later within the same transaction lifecycle, allowing confidential and public operations to work together without sacrificing deterministic execution or creating race conditions.
The execution model is intended to support applications that require confidential computation while still interacting with Ethereum’s public ecosystem, including shared liquidity pools and other decentralized finance protocols.
Privacy model targets decentralized finance and enterprise applications
Beyond transaction privacy, the execution layer introduces features that could reduce several long-standing issues in blockchain execution.
According to Aztec Labs, transaction details remain hidden before state commitment, making it significantly harder for external observers to reorder pending transactions or exploit visible transaction data through Maximal Extractable Value strategies.
The architecture also provides building blocks for applications such as confidential order matching, private liquidity provisioning, and selective compliance systems that disclose only required information through viewing keys instead of exposing complete user records.
Those capabilities build on Aztec’s long-standing focus on programmable privacy rather than simple anonymous token transfers.
Speaking to crypto.news in April 2025, Aztec Labs co-founder and CEO Zac Williamson said blockchain privacy should go beyond hiding wallet addresses.
He described user privacy, confidential transaction data, and private smart contract execution as the three pillars needed for practical on-chain privacy, calling them “the holy grail of blockchain privacy.”
Williamson also argued that privacy should not be treated as a separate segment of the industry, saying, “all crypto will be private” as programmable privacy becomes part of mainstream blockchain applications.
Discussing compliance, Williamson said privacy preserving systems should rely on selective disclosure instead of complete anonymity. He pointed to ZKPassport as an example, explaining that users can tap an NFC enabled passport to generate a zero knowledge proof and choose “what information you want to disclose,” whether it is nationality, age, or other identity attributes.
He said the technology is “permissionless, it’s privacy preserving, and it ensures strong compliance,” adding that such systems are “a lot more powerful” than existing privacy solutions because they combine privacy with programmable compliance.
That vision expanded further in May 2026 when Aztec Labs acquired ZKPassport while committing to keep the passport verification platform open source. The acquisition brought the privacy-focused identity infrastructure directly into Aztec’s ecosystem, allowing developers to combine programmable privacy with zero-knowledge identity verification across Ethereum-compatible networks.
The technology had already been tested on Aztec’s network to help reduce Sybil attacks by allowing participants to prove they were unique individuals without revealing their identities. It was also used during the AZTEC token sale to perform sanctions screening while keeping participant information private.
Alpha release follows security incidents involving legacy products
The execution layer arrives shortly after Aztec Labs dealt with security issues involving products that had already been retired.
Earlier this month, Aztec Labs disclosed that it was investigating a potential exploit involving a deprecated payments product launched in 2021 after roughly $2 million was transferred from an immutable smart contract. The company said the affected system had been discontinued in 2022 and operated without administrator keys, preventing the team from pausing or upgrading the contract.
Separately, another deprecated product, Aztec Connect, lost approximately $2.1 million after attackers exploited an old immutable RollupProcessorV3 contract. Aztec Labs said the incidents were unrelated to the active Aztec network.
The Aztec Foundation also stated that neither exploit had any connection to the current network or the AZTEC ERC-20 token, emphasizing that the affected contracts belonged to legacy infrastructure that had remained live on Ethereum after the products were sunset.
Balaji Srinivasan’s Network School is looking to expand into Kazakhstan after regulators moved against its Malaysia operations, according to a memorandum of understanding announced by Kazakhstan’s Ministry of Digital Development, Innovation and Aerospace Industry. The deal, signed with minister Zhaslan Madiyev, aims to establish what the ministry describes as the first Network School campus in the country.
The Kazakhstan announcement comes as Network School’s Forest City-area presence faces escalating regulatory pressure. Malaysia’s local authorities revoked the business license of the operator, NSO Malaysia Sdn Bhd, prompting the Malaysia Digital Economy Corporation (MDEC) to begin steps to remove the company’s Malaysia Digital status. The situation raises the question of how easily Network School can restart and maintain immigration- and incentives-related arrangements across borders.
Key takeaways
- Kazakhstan’s ministry says it has signed an MoU with Balaji Srinivasan to create the first Network School campus in the country.
- Malaysia’s Iskandar Puteri City Council revoked NSO Malaysia Sdn Bhd’s business license over alleged licensing and premises-use breaches.
- MDEC says it is taking immediate steps to revoke NSO Malaysia’s Malaysia Digital status, which comes with benefits such as tax incentives and employment flexibility.
- Local officials in Johor have urged federal authorities to keep investigating whether Network School violated immigration laws.
- Srinivasan has framed the developments as consistent with the “network state” concept, while also saying Malaysia issues are being addressed through a remedial process.
Kazakhstan MoU opens a new front for Network School
In a statement from Kazakhstan’s Ministry of Digital Development, Innovation and Aerospace Industry, the government said an MoU was signed with Zhaslan Madiyev and Network School founder Balaji Srinivasan to establish a campus in Kazakhstan. While the document signals a strategic expansion, details of implementation—such as timeline, campus location, and regulatory steps—were not included in the provided reporting.
Network School’s Kazakhstan pivot matters for prospective residents and investors because campus operations are closely tied to host-country regulatory conditions, especially around visas, employment rules, and corporate status benefits. Srinivasan has previously described Network School as a community built around attracting globally distributed talent and capital, and the Kazakhstan proposal positions the group to potentially preserve momentum rather than waiting for a resolution in Malaysia.
Kazakhstan has also been positioning itself as a technology hub, including plans connected to a “crypto city” in Alatau, as referenced in the source material. Against that backdrop, Network School’s presence could be marketed as part of a broader attempt to draw innovation-driven communities and companies to the region.
Malaysia: revoked license and a threat to Malaysia Digital status
Malaysia’s regulatory actions began after the Iskandar Puteri City Council (MBIP) revoked the business license of NSO Malaysia Sdn Bhd, the entity operating the Network School’s Johor-area campus. MBIP cited alleged breaches of licensing conditions and requirements related to how premises were used, according to a report linked in the source material from mediadigitaljohor.gov.my.
Following the license revocation, MDEC announced it was taking immediate steps to revoke NSO Malaysia’s Malaysia Digital status. The Malaysia Digital program recognizes qualified technology and digital companies and is described in the source material as offering incentives such as tax advantages, ownership flexibility, and permission to employ both local and foreign workers—benefits that can be critical for international communities that rely on a steady inflow of talent.
MDEC’s stated rationale is that Malaysia Digital status requires companies to comply with local and federal laws. Removing that status could complicate Network School’s ability to operate smoothly if the campus depends on the program’s employment and incentives framework.
Johor officials push for immigration-law scrutiny
The stakes extend beyond corporate licensing. The source material says Johor Chief Minister Onn Hafiz Ghazi urged Malaysia’s federal authorities to continue investigating whether Network School violated immigration laws. He characterized Johor as a “strategic entry point” because the state borders Singapore and therefore argued that any weaknesses or abuse of the immigration system should be addressed promptly and firmly.
That emphasis highlights a common tension for border-adjacent technology hubs: even when a concept has strong global appeal, enforcement actions tied to immigration compliance can quickly affect day-to-day operations, staffing, and residency arrangements for community members.
Earlier coverage referenced in the source material indicates that scrutiny has been ongoing, including questions about how the campus fits within existing legal frameworks. The current license revocation and the potential loss of Malaysia Digital status suggest authorities are not treating the matter as purely procedural.
Srinivasan denies shutdown claims and points to remediation
As the regulatory situation unfolded, Srinivasan denied reports that Network School was shutting down. According to the linked social media statement in the source material, he said Network School had received two notices: one reportedly requiring “change the text of a sign,” and another related to a coworking setup formed by combining two adjacent units, where one side had a valid license but the other did not.
Srinivasan said the issues fell within a remedial period and that the organization would remediate them, adding that its members were otherwise unaffected. Cointelegraph also notes that it reached out to Srinivasan and Network School for comment, but the provided text does not include any additional responses beyond the denial and remediation framing.
Interpreting these statements alongside the MBIP and MDEC actions reveals an important asymmetry: public guidance from local authorities and program administrators may move faster than a company’s internal remediation plan. In practical terms, even if a remedial path exists on paper, the uncertainty can still disrupt hiring, occupancy, and community planning—especially for international residents who rely on predictable compliance timelines.
Meanwhile, Dragonfly Capital managing partner Haseeb Qureshi, quoted in the source material, linked the “Malaysia drama” to the broader “network state” argument. He suggested that the outcome could be used to negotiate new arrangements with other jurisdictions—an interpretation Srinivasan appears to be leaning into as the Kazakhstan MoU emerges.
What to watch next for Network School
Readers should focus on two tracks as the story develops: whether MDEC’s Malaysia Digital revocation proceeds and how quickly Malaysia’s immigration inquiries translate into enforceable outcomes, and—on the other side—how Kazakhstan operationalizes the MoU into concrete regulatory approvals for a Network School campus. Until those details are clear, Network School’s ability to retain its community and recruitment momentum will likely depend on jurisdiction-by-jurisdiction compliance rather than a single global brand narrative.
The Digital Chamber sued the Illinois Department of Revenue on Tuesday, asking a Sangamon County court to strike down the state’s new Digital Asset Tax Act before it takes effect.
The trade group represents more than 250 blockchain firms. It argues the 0.2% levy unfairly singles out digital assets based on the technology used to record ownership.
Inside Illinois’ Digital Asset Tax Act
Illinois enacted the Digital Asset Tax Act as Article 3 of Public Act 104-0468. The measure sets a 0.2% tax on the exchange, transfer, or storage of a customer’s digital asset.
Brokers must also register with the Department of Revenue. Violating the Illinois statute exposes them to Class 3 felony charges. The tax takes effect January 1, 2027.
Governor JB Pritzker signed Senate Bill 3019 into law in June. It drew heavy backlash from the crypto industry at the time, and the courts are now involved.
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Illinois Crypto Tax Faces Legal Challenge Months Before Launch
The Digital Chamber’s lawsuit raises six claims under state and federal law. It argues that the tax treats identical property differently based only on how ownership is recorded.
“Put simply, this tax discriminates against people who transact in digital assets,” the group said.
A tokenized Treasury and a book-entry Treasury carry the same rights, the suit says. However, only the blockchain version is subject to tax. The filing compares the setup to taxing one email system but not another.
The group also warns that the definition could stretch far beyond crypto. It says future state taxes could reach AI-enabled settlement systems and cloud-based payment networks.
“Taxes should be carefully considered, not only for the revenue they produce but for the fairness of those being taxed. That was not the case here, as the provision slipped into legislation the night before the bill’s final consideration,” CEO Cody Carbone said.
The suit asks the court to declare the Act void and block enforcement. A repeal bill, House Bill 5798, remains pending in the legislature.
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The post Digital Chamber Sues Illinois Over 0.2% Crypto Tax Law appeared first on BeInCrypto.
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