The Rise of Stablecoins and Regulatory Challenges

Recently, the concept of "stablecoin" has suddenly become a hot topic. As a lawyer engaged in blockchain legal services for a long time, I encounter related business and cases every day. A few events that happened in just a few days recently make one feel somewhat magical.

The Party Committee of the Shanghai State-owned Assets Supervision and Administration Commission held a study meeting to discuss the development trends and response strategies of cryptocurrencies and stablecoins. The Shanghai Pudong New District Court announced a major case involving the use of stablecoins for cross-border currency exchange, with an amount involved reaching 6.5 billion yuan. The United States has officially signed a bill establishing a regulatory framework for digital stablecoins. Hong Kong is also about to implement the "Stablecoin Regulatory Ordinance," becoming the first region in the world to establish a comprehensive regulatory system for fiat stablecoins.

These events are concentrated in occurrence. On one hand, major financial centers are promoting the compliance and financialization of stablecoins, while on the other hand, some domestic law enforcement agencies still regard stablecoins as "illegal financial activities." This misalignment of regulatory pace and institutional perspective seems to remind us that it is time to reassess the real role and institutional positioning of stablecoins.

Why are stablecoins favored by black and gray markets?

The reason underground money houses prefer stablecoins represented by USDT as tools for cross-border currency exchange is mainly that it breaks through many of the restrictions faced by traditional currency exchange:

1. Break through the limit: Stablecoins can easily circumvent the personal annual foreign exchange purchase limit of $50,000.

2. Reduce pressure on the liquidity pool: There is no need to prepare a large amount of foreign exchange positions domestically and abroad, significantly lowering the operational threshold.

3. Improve deposit efficiency: On-chain transfers usually take 10 minutes to 1 hour to complete and operate around the clock.

4. Enhance identity concealment: Multi-layer address obfuscation makes it difficult to trace the connection between the flow of funds and real identity.

5. Utilizing regulatory arbitrage: Completing fiat currency transactions in regions with loose regulations to evade strict domestic regulations.

The intervention of stablecoin technology has restructured the operation of illegal currency exchange, greatly enhancing the efficiency and concealment of black and gray industries. It is becoming a new technological infrastructure for the "gray flow" of cross-border funds.

Why does the country continue to exert high pressure to combat crimes related to virtual currency?

China's high-pressure crackdown on crimes related to virtual currency is mainly based on two core regulatory logics:

1. The anonymity and cross-border liquidity of virtual currencies make them difficult to effectively regulate by traditional financial regulatory systems, and they can easily be used to conceal and transfer illegal proceeds.

2. As a country with strict foreign exchange controls, the borderless nature of virtual currency can easily become a tool for evading regulation and achieving illegal currency exchange.

Such behavior not only disrupts the financial order but also poses a substantial impact on macroeconomic regulation and national economic security, including statistical distortion, failure of macroeconomic control, tax and asset loss, etc.

Since 2017, regulatory efforts have been continuously intensified. The "card-breaking" campaign that started in 2020 prompted underground money houses and others to switch their funding channels to stablecoins. After reiterating in 2021 that virtual currency-related businesses are illegal financial activities, stablecoins became even more active in the gray market.

This has also given rise to a group of intermediaries known as "U merchants" who engage in "buy low and sell high" arbitrage. Although they do not directly participate in the upstream sector, they are often accused of illegal operations and other crimes due to their role in facilitating transactions, making them a "high-risk marginalized group" in current judicial practice.

Can policy repression really "eliminate" stablecoins?

Despite the increasing regulatory policies, as a lawyer who has handled numerous related cases, I can't help but wonder: can this ongoing crackdown truly achieve the goal of effectively combating crime?

The actual situation is often:

1. Those who are caught are mostly "marginal figures": ordinary employees, "runners", intermediaries, etc., rather than decision-makers or actual beneficiaries.

2. The main perpetrator is on the run, making it difficult for law enforcement to catch up: many operators have already left the country, and the cost of transnational law enforcement is high.

3. National losses are difficult to recover, and the return on judicial resource investment is limited: Even if a large amount of resources is invested, the actual amount recovered is often far below expectations.

Although this fragmented crackdown has a deterrent effect, it is difficult to fundamentally solve the problem. Let's review some typical cases officially reported in recent years, which seem to present a sense of "the more you block, the more it leaks" and "the more you hit, the bigger it gets".

Loss of Dominance of Stablecoins

If combating the gray industry is "defense", then leading legitimate alternative paths should be "offense". Unfortunately, China's former status as a major stablecoin power has been lost. Most of the founders of the well-known global exchanges today are Chinese. However, policy barriers have forced project parties, platforms, and investment teams to shut down or go overseas, causing China to lose the opportunity to lead the entire stablecoin ecosystem.

The research and development of the central bank's digital renminbi attempts to take a different approach, but due to the lack of widespread application scenarios and ecological support, market acceptance remains sluggish. Relying solely on administrative orders for forced promotion is unlikely to create a truly effective payment alternative.

The promotion of digital renminbi has failed to achieve its policy objectives, which not only proves the limitations of the policy path but also highlights the negative effects brought about by the "ban" on stablecoins: the problems have not disappeared; rather, they have made the gray paths more hidden and complex.

Advantages and Use Cases of Stablecoins

In July 2025, the United States officially established a regulatory framework for digital stablecoins. A financial research expert from Fudan University commented: "The USD stablecoin is essentially a tokenized projection of the US dollar in the blockchain world, a digital extension of dollar hegemony. It amplifies the global penetration of the dollar through technological means, but also brings new systemic risks. For nations, stablecoins have become a new battleground for monetary sovereignty games."

From a technical perspective, a stablecoin is a programmable digital asset that is anchored to the value of fiat currency and operates on a blockchain network. It has characteristics such as efficiency, decentralization, and low cost, and is widely used in the following scenarios:

1. Cross-border trade settlement
2. Free Trade Zone and Bonded Warehouse Payment System
3. Supply Chain Finance
4. Carbon Trading and Digital Asset Market
5. B-end and C-end payment tools

Stablecoins do indeed carry the risk of being used for illegal activities, but they also have practical positive uses. This is precisely why many regions are actively exploring the design of "compliance sandboxes" for them. When evaluating stablecoin regulatory policies, we need to gain a deep understanding of their value in cross-border payments, financial services, industrial collaboration, and other aspects, and consider how to utilize them in a controllable manner.

The absence of a system is the root of the problem

Stablecoins are not inherently tools for crime, but rather carriers of a new financial structure. Whether they will be abused depends largely on whether the system can keep up in a timely manner. Simply suppressing them cannot hinder technological development; instead, it may lead to the loss of global competitiveness that could have been maintained.

From the perspective of a criminal lawyer's case handling experience, the institutional vacuum has led to substantial law enforcement dilemmas:

1. The case-handling units have a lag in understanding: Most grassroots case handlers lack a basic understanding of the principles and operating mechanisms of blockchain technology.

2. Combating Fragmentation of Strategies: Cases involving virtual currency often lack clear boundaries in terms of qualification, leading to uncertainty in the application of the law.

Relying only on "plugging loopholes and catching offenders" to maintain the bottom line is a high-cost, low-output approach. As long as there is real demand in the market, there will always be "alternative solutions" developed.

The truly effective system construction should build a framework that achieves a dynamic balance between security and efficiency. This is the direction that future financial governance should take.

Conclusion

The real solution does not lie in blocking technical tools such as "stablecoins", but in building a compliant ecosystem that can guide, replace, and regulate, allowing virtual currency regulatory policies to function accurately and effectively. Let those that should be cracked down on have nowhere to hide, and let those that should be utilized be used to our advantage.