Stablecoin scams put China’s financial regulators in a high-stakes balancing act

A financial dilemma has sent local-level financial authorities across China scrambling as they try to navigate a stablecoin frenzy that some say has become a breeding ground for chaos, with scams that have already duped millions.

As a result, several local governments have elevated stablecoins to the top of their agendas in recent weeks while issuing urgent warnings to investors about illegal fundraising and fraudulent schemes.

With this in mind, the nation’s top financial authorities remain committed to financial innovation and adaptation. And regulators are doing their best to strike a balance.

But in major mainland cities such as Beijing, Shenzhen, Suzhou and Chongqing, alerts went out last week. They warned that illicit financial activities, which often lure investors with promises of high returns and guaranteed interest payments, pose significant risks to public financial security.

The word of caution came as a major investment scam – promoting high returns using buzzwords and terms such as “USDT”, a leading stablecoin also known as tether – was being widely reported across the mainland.

Said to have defrauded more than 2 million investors, the scheme has evoked memories of widespread collapses among peer-to-peer lending platforms in China between 2018 and 2020.