Shanghai authorities dismantled a 6.5 billion yuan (approximately $900 million) illegal stablecoin network, primarily involving USDT, underscoring the regulatory challenges and enforcement efforts in China concerning cryptocurrency transactions.

Executive Summary

Shanghai authorities dismantled a 6.5 billion yuan (approximately $900 million) illegal stablecoin network, primarily involving Tether (USDT), highlighting the ongoing efforts to curb unregulated foreign exchange activities within the region. The case underscores the risks associated with using cryptocurrencies to bypass China's strict capital controls.

The Event in Detail

The Shanghai Pudong New District People's Court announced a case involving illegal cross-border currency exchange using stablecoins. Individuals, including Yang and Xu, manipulated domestic shell company accounts to provide stablecoin services for clients to achieve cross-border fund transfers. The illegal foreign exchange transactions amounted to 6.5 billion yuan over three years. This criminal gang used USDT as a medium and provided illegal currency exchange services to clients through cross-border "matching" methods, charging a fee typically ranging from 1% to 3%.

Market Implications

The crackdown underscores China's regulatory stance on cryptocurrencies, emphasizing that the financial impact is isolated to the facilitators of these transactions. The operation involved 193 people taken into custody across 26 provinces, municipalities, and autonomous areas, with authorities blocking 149 million yuan in related funds. This action aligns with China's complete ban on cryptocurrency exchanges, which aims to stabilize markets and prevent capital flight.

Expert Commentary

"This illegal exchange mechanism...splits a single regulated forex transaction into two separate operations, thereby evading regulatory oversight," according to Gao Yongfeng, Senior Partner at Shanghai Jinli Law Firm.

Broader Context

China has maintained one of the most aggressive stances toward cryptocurrencies, reshaping its entire financial ecosystem. In 2025, China reaffirmed its full ban on all forms of cryptocurrency activity, including mining, ownership, and exchange trading. The People's Bank of China (PBoC) extended the policy framework to include newer instruments like NFTs and algorithmic stablecoins. Despite restrictions, stablecoins like USDT continue to be used in illicit foreign exchange transactions evading national foreign exchange supervision. Authorities now consider laundering amounts over 5 million yuan serious offenses under the law.