Chinese authorities have discovered an underground banking network worth $1.9 billion involving the popular stablecoin Tether. The illicit operations took place in Chengdu, China, where Tether (USDT) was used for foreign currency exchanges. The city police released a detailed report on the underground activities, revealing that 193 suspects from 26 provinces had been arrested.
According to the police report, the underground USDT banking operations started in January 2021 and were primarily focused on smuggling medicine, cosmetics, and investment assets abroad. The authorities successfully dismantled two underground operations in Fujian and Hunan, while also freezing 149 million yuan ($20 million) linked to the USDT banking operations.
Despite the Chinese government’s strict ban on cryptocurrency-related activities, Chinese traders continue to find ways to bypass the restrictions and utilize crypto assets in alternative ways. A report by Kyros Ventures reveals that Chinese traders rank among the largest holders of stablecoins globally. The report shows that 33.3% of Chinese investors hold multiple stablecoins, placing them second only to Vietnam with 58.6%.
The Chinese government has not only banned the use of cryptocurrencies and cryptocurrency exchanges but also implemented a ban on Bitcoin mining operations. However, the local population has managed to evade these bans over the years.
When China banned Bitcoin mining, it was the largest contributor to the Bitcoin network hash rate. Surprisingly, within a year of the ban, Chinese mining hash rate contribution rose to second place, despite the prohibition. Similarly, after the ban on centralized exchanges, Chinese traders turned to decentralized exchanges.
In response to the ban, Chinese traders significantly increased their use of decentralized finance-based protocols, while some resorted to using virtual private networks to defy the restrictions.