The Shenzhen government of China has alerted the public about the misuse of “stablecoins” in the country. The government warned that stablecoins have received widespread attention recently and have been involved in some illegal dealings.
After due monitoring, the Office of the Municipal Task Force for Preventing and Combating Illegal Financial Activities discovered that some illegal institutions are illegally absorbing funds by using concepts such as “stablecoins” and “digital assets.” The regulatory body reveals that these institutions take advantage of the public’s lack of understanding of stablecoins to entice them into illegal fundraising, fraud, money laundering, and other activities. The call underscores how crypto assets are aiding illegal financing.
The Growing Illicit Funding Via Stablecoins
Stablecoin transactions have dominated around 70% of illicit activity in recent years. Due to their stability, they have become the preferred tool for scams and money laundering, amounting to an estimated $50 billion annually. In China, a criminal syndicate operating in 26 provinces moved around $1.9 billion in USDT through underground banking to bypass FX and tax charges.
Shenzhen authorities have now flagged a series of stablecoin-based investments related to fraud, pyramid schemes, and unauthorized fundraising. As a result, they have issued warnings about the threat private stablecoins pose to financial stability. Private stablecoins allow users to bypass monetary controls and FX laws, undermining China’s monetary sovereignty and framework.
Apart from bypassing FX laws, these dangerous criminals and cartels use stablecoins to finance to facilitate drug trades and human trafficking because they are faster and more discreet. Besides, most fraudulent investments leave users penniless, eroding trust in decentralized finance.
How Shenzhen Authorities Plan to Curb the Proliferation
According to the Regulations on Preventing and Dealing with Illegal Fundraising, the state frowns against any form of illegal fundraising. Any losses incurred due to participation shall be borne by the participants. To summarize, the authorities warn users against investing in stablecoin schemes that promise exaggerated profits.
The authorities also encourage users to report any institution that engages in illegal fundraising, using the concept of stablecoins, to the public security department. There’s a reward for such informants, according to the laws. Experts recommend aggressive penalties for illicit stablecoin creators, but more public awareness campaigns should be created to raise an alarm about these illicit activities.
Analysts Advocate for Aggressive Enforcement Actions, e-CNY Adoption
Analysts also suggest accelerated promotion and expansion of e-CNY and the launch of offshore yuan-pegged stablecoins in Hong Kong. Recently, JD.com and Alibaba’s Ant Group suggested the Chinese government develop a yuan-pegged stablecoin to counter the inflow of dollar-pegged stablecoins. Furthermore, the launch will curb illegal activities involving dollar-pegged stablecoins and grow the Chinese economy.
They also recommend adopting a comprehensive, but strict framework, similar to the EU and the United States. Currently, the U.S. will discuss the passage of three crypto bills – the Clarity Act, the GENIUS Act, and the Anti-CBDC Surveillance State Act, in the designated “Crypto Week,” starting from July 14th.
For economies like China, the explosive rise of stablecoins can dampen growth and DeFi bloom. Unchecked private stablecoin transactions erode sovereignty and threaten monetary stability. However, robust enforcement, advocacy, and launching a yuan-pegged stablecoin can ensure the financial system is secure and trusted.
