Stellar (XLM) transactions can now be monitored by Elliptic

The Stellar Foundation announced Thursday that it has partnered with blockchain forensics firm Elliptic to detect and prevent illicit transactions on the Stellar network. Elliptic, backed by Wells Fargo, works with a number of big players in crypto, but its role within crypto is not without controversy. Nevertheless, Stellar is joining its growing list of partners.

“Elliptic analysts will engage in ongoing dark web research, identification of money laundering patterns and the collection of high-quality data linking XLM accounts to known entities,” the companies said in a joint press release. Stellar Lumens (XLM) is the cryptocurrency that powers the Stellar blockchain.

The organization's announcement of Elliptic’s “XML transaction and wallet screening" was unclear as to whether developers and firms building on Stellar would have a choice in having their operations tracked by the third party. 

In response, a spokesperson for the Stellar Foundation clarified to Decrypt that the service is optional for businesses who want to use Elliptic. XLM wallet users will not be surveilled.

"Currently, only XLM transactions will be monitored by Elliptic. Businesses issuing other assets on the Stellar network will not automatically be monitored, but the infrastructure now exists for them to take advantage of Elliptic’s services," the spokesperson said.

The partnership between Stellar and Elliptic is emblematic of the ongoing struggle between privacy and compliance in the cryptocurrency and blockchain industry, as regulators around the world crack down with further anti-money laundering regulations.

Facebook’s Libra, for example, recently gave up its attempts at a “permissionless” and fully decentralized network in order to satisfy concerns with regulations and foreign exchange controls.

Stellar, however, doesn't see it that way. "For blockchain technology to increase adoption and move into the mainstream, it is important that businesses have the resources and tools they need to comply with important regulatory requirements, like AML and KYC," the spokesperson said. "These tools are key for businesses to be able to manage their risk and operate with transparency and accountability, but these aren’t at odds with privacy. We believe compliance and privacy can and do co-exist. "

In partnering with the blockchain analysis firm, Stellar may also be better positioning itself for institutional investors. Last month, Wells Fargo invested $5 million in Elliptic to assist the bank in detecting illicit crypto transactions. Last year, the forensics firm also teamed up with IBM and MIT to reveal the “world’s largest label dataset of Bitcoin transactions.” 

Editor's note: This article was updated after publication to include comments from the Stellar Foundation and to clarity that only businesses and institutions that opt-in will have transactions monitored.