Stablecoins have emerged as transformative infrastructure for Chinese companies expanding internationally, offering 50-80% cost savings and settlement times reduced from days to minutes. The market reached $300+ billion by October 2025 (up 47% year-to-date), processing $6.3 trillion in cross-border payments over 12 months—equivalent to 15% of global retail cross-border payments. Major Chinese companies including JD.com, Ant Group, and Zoomlion are actively deploying stablecoin strategies through Hong Kong's newly regulated framework, which became effective August 1, 2025. This development comes as China maintains strict crypto restrictions on the mainland while positioning Hong Kong as a compliant gateway, creating a dual-track approach that allows Chinese enterprises to access stablecoin benefits while the government develops the digital yuan (e-CNY) as a strategic alternative.
The shift represents more than technological innovation—it's a fundamental restructuring of cross-border payment infrastructure. Traditional SWIFT transfers cost 6-6.3% of transaction value and take 3-5 business days, leaving approximately $12 billion trapped in-transit globally. Stablecoins eliminate correspondent banking chains, operate 24/7, and settle in seconds for 0.5-3% total cost. For Chinese companies facing capital controls, foreign exchange volatility, and high banking fees, stablecoins offer a pathway to operational efficiency—though one fraught with regulatory complexity, technical risks, and the strategic tension between dollar-backed stablecoins and China's digital currency ambitions.
Understanding stablecoins: types, mechanisms, and market dominance
Stablecoins are cryptocurrencies designed to maintain stable value by pegging to external assets, primarily the US dollar. The sector is dominated by fiat-collateralized models, which hold 99% market share and back each token 1:1 with reserves—typically US Treasury bills, cash, and equivalents. Tether (USDT) leads with $174-177 billion market capitalization (58-68% dominance), followed by Circle's USDC at $74-75 billion (20.5-24.5%). Both experienced explosive 2024 growth: USDT added $45 billion in new issuance (+50% annually), while USDC grew 79% from $24.4 billion to $43.9 billion.
USDT generates significant revenue from yields on its $113+ billion US Treasury holdings, earning $13 billion net profit in 2024 (record-breaking). The company maintains 82,000+ Bitcoin (~$5.5 billion) and 48 metric tons of gold as additional reserves, with a $7+ billion excess buffer. However, transparency remains contentious: Tether has never completed a full independent audit, relying instead on quarterly attestations from BDO. The CFTC fined Tether $42.5 million in 2021 for claims that USDT was fully backed only 27.6% of the time during 2016-2018. Despite controversies, USDT dominates with daily trading volumes consistently exceeding $75 billion—often surpassing Bitcoin and Ethereum combined.
USDC offers stronger transparency through monthly attestations by Deloitte & Touche and detailed CUSIP-level disclosure of Treasury holdings. Circle manages approximately 80% of reserves through BlackRock's government money market fund (USDXX), with 20% in cash at Global Systemically Important Banks (GSIBs). This structure proved both strength and vulnerability: during March 2023's Silicon Valley Bank collapse, Circle's $3.3 billion exposure (8% of reserves) caused USDC to briefly depeg to $0.87 before recovering within four days after federal intervention. The incident demonstrated how traditional banking system risks contaminate stablecoins, triggering cascade effects—DAI depegged to $0.85 due to 40% USDC collateral exposure, causing ~3,400 automatic liquidations worth $24 million on Aave.
Crypto-collateralized stablecoins like DAI (MakerDAO) represent the decentralized alternative, with $5.0-5.4 billion market capitalization. DAI requires over-collateralization—typically 150%+ collateralization ratios—using crypto assets (ETH, WBTC, USDC) locked in smart contracts. When collateral value drops too low, positions automatically liquidate to maintain DAI stability. This model proved resilient during the 2023 banking crisis, maintaining peg while USDC wobbled, but faces capital inefficiency and complexity challenges. MakerDAO is evolving toward "Endgame" plans to scale DAI (rebranding as USDS) to 100 billion supply to compete with Tether.
Algorithmic stablecoins have been largely abandoned following Terra/Luna's catastrophic May 2022 collapse that wiped out $45-60 billion. TerraUST (UST) relied solely on arbitrage with LUNA token without true collateral, offering unsustainable 19.5% APY through Anchor Protocol that required $6 million daily subsidies by April 2022. When large withdrawals triggered runs on May 7, 2022, the death spiral mechanics caused LUNA to mint exponentially while UST fell from $1 to $0.35, then pennies. Research revealed 72% of UST was concentrated in Anchor, wealthier investors exited first with smaller losses, and retail investors who "bought the dip" suffered the most. The Luna Foundation Guard's $480 million Bitcoin reserves proved insufficient to restore the peg, demonstrating fatal flaws in undercollateralized algorithmic models.
Stablecoins maintain their dollar peg through arbitrage mechanisms: when trading above $1, arbitrageurs mint new tokens from issuers at $1 and sell at market price for profit, increasing supply and pushing prices down; when trading below $1, arbitrageurs buy cheap tokens on markets and redeem at issuers for $1, decreasing supply and pushing prices up. This self-stabilizing system works in normal conditions with credible issuer commitment, supplemented by reserve management, redemption guarantees, and collateral liquidation protocols.
Cross-border payment pain points that stablecoins address for Chinese companies
Chinese companies face severe friction in traditional cross-border payments, stemming from high costs, settlement delays, capital controls, and currency volatility. Transaction fees average 6-6.3% of transfer value according to 2024 World Bank data, comprising sending bank fees ($15-$75), multiple intermediary correspondent bank fees ($15-$50 per bank, typically 2-4 banks in payment chain), receiving bank fees ($10-$30), and foreign exchange markups (2-6% above mid-market rate hidden in exchange rates). For a typical $10,000 wire transfer, total costs reach $260-$463 (2.6-4.63%), with international remittances to Sub-Saharan Africa averaging 7.7%.
Settlement times of 3-5 business days create massive working capital inefficiency, with approximately $12 billion trapped in-transit globally at any moment. SWIFT's T+2 to T+3 settlement cycles result from different time zones and banking hours (limited to business hours only), weekend and holiday closures, multiple intermediary banks in payment chains, manual AML/KYC verification processes, batch-based processing systems, and currency conversion requirements. SWIFT data shows approximately 10% of cross-border transactions require correction or fail: 4% cancelled before/on settlement date, 1% cancelled after settlement date, and 5% completed after settlement date.
China's foreign exchange controls create unique challenges under SAFE (State Administration of Foreign Exchange) and PBOC (People's Bank of China) administration. The $5 million threshold requires SAFE approval for all outbound remittances exceeding this amount (reduced from previous $50 million limit). The $50 million ODI threshold means SAFE supervises and can halt ODI projects requiring larger transfers. Pre-payment registration requirements mandate companies register with SAFE within 15 working days of contract signing for advance payments. Companies must report overseas payments with terms exceeding 90 days, and overpayment amounts cannot exceed 10% of prior year's total importation. December 2024 SAFE regulations now require banks to monitor and report crypto-related transactions, specifically targeting illegal cross-border transactions.
Individual restrictions compound challenges: annual foreign currency conversion limits of $50,000 per person, transactions exceeding $10,000 must be reported, and cash transactions exceeding RMB 50,000 (~$7,350) must be reported. Companies report unpredictable approval times from SAFE, with window guidance varying by city and region, creating lack of consistency and uncertain process times that differ by jurisdiction.
Stablecoins dramatically address these pain points through multiple mechanisms. Cost reductions reach 50-80% versus traditional methods: blockchain transaction costs on Ethereum average ~$1 for USDC transfers (down from $12 in 2021), while Layer 2 networks like Base and Arbitrum charge less than $0.01 average, and Solana processes transactions for ~$0.01 with 1-2 second settlement. Total stablecoin fees range 0.5-3.0% of transfer amount compared to 6-6.3% traditional. For a $10,000 transfer, stablecoins cost $111-$235 (1.11-2.35%) versus $260-$463 traditional, yielding net savings of $149-$228 per transaction (49-57% reduction). For companies with $1 million annual cross-border payments, this translates to $30,000-$70,000 annual savings (50-87% reduction).
Speed improvements are even more dramatic: settlement reduced from 3-5 days to seconds or minutes with 24/7/365 availability. Solana achieves 1,133 TPS with 30-second finality; Ethereum processes transactions in 2-5 minutes with 12-confirmation finality (~3 minutes); Layer 2 solutions achieve 1-5 second settlement; and Stellar completes transactions in 3-5 seconds. This eliminates the approximately $1.5 million in capital trapped in-transit at any moment for a company with $10 million monthly cross-border payments. At 5% annual cost of capital, this freed capital provides $75,000 annual benefit, combined with fee savings of $60,000-$80,000 for total annual benefit of $135,000-$155,000 (1.35-1.55% of payment volume).
Stablecoins bypass traditional banking friction through direct wallet-to-wallet transfers requiring no bank intermediaries, eliminating 3-5 intermediary banks in payment chains, circumventing capital controls (blockchain-based transfers harder to restrict than traditional banking flows), reduced AML/KYC friction through smart contract automation and on-chain compliance tools (companies like Chainalysis, Elliptic, TRM Labs provide real-time AML screening), and no pre-funding requirements eliminating need for local currency accounts in multiple jurisdictions. For Chinese companies specifically, stablecoins potentially bypass SAFE approval requirements for smaller transactions, provide faster options than 15-day registration requirements for pre-payments, offer more flexibility than $5 million threshold restrictions, and enable real-time settlement despite capital controls—with Hong Kong serving as gateway through JD.com's Jingdong Coinlink preparing HKD and USD stablecoins.
Volatility mitigation occurs through 1:1 fiat peg with each stablecoin backed by equivalent fiat reserves. USDC's reserve composition includes 85% short-term US Treasuries or repos and 15% cash for immediate liquidity. Instant settlement eliminates multi-day currency risk windows, providing predictability where companies know exact amounts recipients receive. Major stablecoins achieved $250 billion total circulation by 2025 (doubled from $120 billion 18 months prior), with daily velocity of 0.15-0.25 indicating high liquidity and projected growth to $400 billion by end-2025 and $2 trillion by 2028.
Regulatory landscape: China's dual-track approach and global frameworks
China maintains strict crypto restrictions on the mainland while positioning Hong Kong as a regulated gateway, creating a complex dual-track system for Chinese enterprises. In June 2025, full criminalization of cryptocurrency ownership, trading, and mining became effective, expanding the 2021 ban. The August 2024 Supreme People's Court ruling classified using cryptocurrencies to convert criminal proceeds as criminal law violation. December 2024 SAFE regulations require banks to monitor and report crypto-related transactions, specifically targeting illegal cross-border financial activities. Using yuan to buy crypto assets before converting to foreign currencies is now classified as illegal cross-border financial activity, with banks identifying high-risk transactions based on individual identity, fund sources, and trade frequency.
Despite these restrictions, an estimated 59 million Chinese users continue crypto activity through VPNs and offshore platforms, and the Chinese government owns 194,000 BTC (~$18 billion) seized from illicit activities. Stablecoins are viewed as threats to capital controls—prior estimates showed $50 billion left China via crypto/stablecoins in 2020 before the comprehensive ban.
Hong Kong's stablecoin framework provides the compliant pathway. In May 2025, Hong Kong's Legislative Council passed the landmark Stablecoins Bill, allowing licensed entities to issue fiat-backed stablecoins (HKD-pegged and CNH-pegged), effective August 1, 2025. The Hong Kong Monetary Authority (HKMA) oversees licensing and audits, with minimum capital requirements of HK$25 million ($3.2 million), full reserve requirements, monthly attestations, and AML compliance. Over 40 companies applied for licenses, with single digits expected for initial approvals. The first batch of sandbox participants (July 2024) included Jingdong Coinlink Technology (JD.com), Circle Coin Technology, and Standard Chartered Bank.
Chinese firms are actively pursuing Hong Kong licenses: Ant International (Singapore-based unit of Alibaba's Ant Group) is applying for stablecoin licenses in Hong Kong, Singapore, and Luxembourg, focusing on cross-border payment services and supply-chain finance through the Alipay+ global payment network. JD.com is participating in HKMA's stablecoin sandbox, planning to secure "stablecoin licences across key currency markets globally" with initial HKD and USD stablecoins, and potential offshore yuan stablecoin pending PBOC approval.
PBOC Governor Pan Gongsheng's June 2025 remarks at Lujiazui Forum marked a significant policy shift—the first official acknowledgment of stablecoins' positive role, noting they are "reshaping the global payment system" and recognizing shorter cross-border payment cycles. This signals China's evolution from complete ban to controlled experimentation using a "two-zone" approach: experimentation offshore (Hong Kong), control onshore (mainland).
United States regulatory clarity arrived with the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins) signed by President Trump in July 2025. This first comprehensive federal stablecoin legislation defines collateral, disclosure, and marketing rules; creates pathway for bank-issued stablecoins; establishes reserve requirements; and gives the Federal Reserve oversight of large stablecoin issuers with master account access requirements for large-scale operations. The GENIUS Act aims to maintain USD dominance amid China's digital currency challenge and is expected to accelerate institutional entry. State-level regulation continues with multiple states maintaining money transmission licenses for stablecoin issuers, with New York (via NYDFS) particularly active. The June 2024 court ruling (SEC v. Binance) confirmed fiat-backed stablecoins like USDC and BUSD are NOT securities, with the SEC closing investigations (Paxos/BUSD case dropped) and shifting focus away from stablecoins to other crypto assets.
European Union's MiCA (Markets in Crypto-Assets) regulation became effective January 2025, requiring detailed reserve disclosure, licenses for issuers operating in EU, with 18-month transition period (until July 2026) for existing operators. MiCA prohibits interest on stablecoins to discourage use as stores of value and imposes transaction limits: if ARTs exceed 1 million transactions daily or €200 million daily value, issuers must stop new issuances. Circle became the first MiCA-licensed issuer in July 2024, with Tether claiming full compliance.
Asia-Pacific jurisdictions are creating supportive frameworks: Singapore's MAS finalized its framework in August 2023 and actively experiments with tokenized deposits through Project Guardian. Japan regulates stablecoins under the Payment Services Act since June 2022, with JPYC launching as first JPY-pegged stablecoin in August 2025, distinguishing between fiat-backed (regulated) and algorithmic (less regulated). Bahrain's Stablecoin Issuance and Offering Module (July 2025) allows single currency fiat-backed stablecoins while prohibiting algorithmic stablecoins. El Salvador granted Tether stablecoin issuer and DASP licenses in 2024, with Tether establishing headquarters there. Dubai and Hong Kong granted Tether VASP licenses in 2024, with both jurisdictions welcoming stablecoin issuers.
Compliance pathways for Chinese companies require offshore legal structures (Hong Kong subsidiaries being most common), payment service provider partnerships with licensed entities, extensive KYC/AML requirements through automated compliance tools (Chainalysis, Elliptic provide real-time AML screening for blockchain identity solutions), and appropriate licensing based on target markets. Hong Kong's framework allows Chinese companies to operate compliantly while maintaining separation from mainland restrictions, positioning Hong Kong as the primary gateway for China's stablecoin experimentation.
Real-world applications: how Chinese companies use stablecoins
Chinese companies are deploying stablecoins across four major categories: cross-border e-commerce, supply chain finance, international trade settlement, and overseas payroll—with concrete implementations emerging in 2024-2025.
Cross-border e-commerce payment and settlement
JD.com represents the flagship case study. China's second-largest e-commerce company (often called "China's Amazon") established Jingdong Coinlink Technology in Hong Kong, participating in HKMA's stablecoin sandbox since July 2024. Chairman Richard Liu announced in June 2025 that JD.com intends to "secure stablecoin licences across key currency markets globally" with initial HKD-pegged and USD-pegged stablecoins, plus future offshore yuan (CNH) stablecoin pending PBOC approval.
Richard Liu stated JD.com "can reduce the global cross border payment cost by 90% and then improve the efficiency to within ten seconds," hoping "JD stablecoin will become a universal payment method worldwide." CEO Teddy Liu of Jingdong Coinlink declared in June 2025: "I believe stablecoins will become the next-generation payment system – that is beyond doubt." JD.com's initial focus targets B2B payments before consumer adoption, with direct transactions planned with Southeast Asian suppliers using JD stablecoins for minute-level transfers, targeting Asia-Pacific, Middle East, and African markets.
The Chinese seller ecosystem on Amazon and eBay is massive: over 63% of Amazon third-party sellers are from mainland China or Hong Kong, with Shenzhen alone accounting for approximately 25% of all Amazon third-party sellers. China's cross-border e-commerce exports grew 19.6% in 2023, reaching RMB 2.38 trillion ($331 billion). These sellers face 7-15 day payment cycles from Amazon, but stablecoins enable minute-level transfers versus 1-5 days traditional. Stablecoin transaction fees are approximately 1/10th of traditional foreign trade transaction fees.
Jiang Bo, a cross-border payment expert interviewed by 36Kr in 2025, analyzed: "From the customers we have contacted, cross-border e-commerce merchants and enterprises engaged in digital service exports are more willing to try stablecoins, mainly because they see the advantages of stablecoins in terms of efficiency and cost." He noted "The repayment cycle for Amazon merchants is generally 7-15 days. Higher payment efficiency helps ensure stable cash flow and improve the efficiency of capital utilization."
Payment platforms enabling this include Shopify integration with Coinbase Commerce for crypto/stablecoin payments where merchants can accept USDC and USDT globally. TransFi processes over $10 billion in annualized payment volume (300% YoY growth in 2025), supporting local collection and payout across 70+ markets, backed by Circle Ventures and Ripple. Grab in Southeast Asia partnered with Alipay and StraitsX in March 2024, allowing Chinese tourists to pay using Alipay converted to XSGD stablecoin, with merchants receiving Singapore dollars.
Supply chain finance and Belt and Road settlements
Zoomlion Heavy Industry provides the flagship manufacturing case. This construction and agricultural machinery manufacturer with $3.3 billion in offshore revenue (2024) partnered with AnchorX (Hong Kong fintech) to use AxCNH, the first licensed offshore yuan-pegged stablecoin. AxCNH received regulatory license from Astana Financial Services Authority (AFSA) in Kazakhstan and operates on Conflux Network blockchain. Launched at the 10th Belt and Road Summit in Hong Kong in February 2025, Zoomlion completed pilot transactions on Conflux blockchain for cross-border settlements with Belt and Road Initiative (BRI) partners.
The strategic significance is substantial: in 2024, China's trade with BRI countries reached RMB 22.1 trillion ($3.2 trillion), targeting 150+ countries across Asia, Africa, South America, and Oceania. AxCNH provides reduced exchange rate volatility, lower transaction costs, and improved settlement efficiency (minute-level versus days). Lenovo also signed an MOU with AnchorX for AxCNH usage, focusing on supply chain and international settlements. ATAIX Eurasia (Kazakhstan exchange) listed AxCNH with trading pairs AxCNH:KZT and AxCNH:USDT, positioning Kazakhstan as gateway to Central Asia and Europe for BRI trade settlements.
Ant Group/Ant International focuses on cross-border finance and supply chain finance, applying for stablecoin licenses in Hong Kong, Singapore, and Luxembourg. The company completed significant tokenized asset projects: August 2024 partnership with Longshine Technology for renewable energy asset tokenization, and December 2024 GCL Energy Technology solar asset project (RMB 200 million / $28 million). Ant's tokenization model uses stablecoins as settlement layer for tokenized assets, bypassing SWIFT system for asset transactions while providing cash-like, low-volatility investment options.
Standard Chartered Bank formed a joint venture with Animoca Brands for HKD stablecoin, participating in Hong Kong's stablecoin sandbox. As one of three banks authorized to issue physical HKD, Standard Chartered's focus on cross-border B2B payments represents traditional banking's embrace of stablecoin infrastructure.
International trade settlement and B2B transactions
Monthly stablecoin transaction volumes between businesses reached $3 billion+ in early 2025, up from under $100 million at start of 2023. 2024 saw 29.6% increase in crypto payment transaction volume (CoinGate data), with stablecoins accounting for 35.5% of all crypto transactions in 2024 (up from 25.4% in 2023 and 16% in 2022, representing 171% YoY growth 2022-2023 and 26.2% YoY growth 2023-2024).
JD.com's B2B focus prioritizes direct transactions with Southeast Asian suppliers using JD stablecoins for minute-level transfers and supply chain payments before expanding to consumer adoption. Use case categories include: commodity trading using AxCNH for Belt and Road commodity imports; manufacturing settlements with direct supplier payments; treasury management enabling real-time liquidity management across borders; and trade finance through pilot corridors in Hong Kong and Shanghai free trade zones.
Ant Digital Technologies' tokenized renewable energy asset projects use stablecoins as settlement layer, with investors receiving stablecoin-denominated returns while bypassing traditional banking for asset-backed financing. This represents the evolution of trade finance where stablecoins serve as universal settlement layer for tokenized real-world assets.
Overseas employee payroll and contractor payments
General market adoption shows 75% of Gen Z workers prefer receiving at least part of their salary in stablecoins, with Web3 professionals earning average $103,000 annually. USDC holds 63% market share for payroll, USDT 28.6%. Benefits include stablecoin transaction fees of 0.1-1% versus 3.5% credit card fees; speed of minutes versus 3-5 days for international transfers; blockchain-recorded transparency for all transactions; and USD-pegged stablecoins protecting against local currency devaluation.
Rise processed over $800 million in payroll volume, operating across 20+ blockchains with Circle partnership for USDC payments. The platform includes compliance tools through Chainalysis and SumSub integration, issues 1099s, and gathers W9/W8-Ben forms. Deel uses BVNK for stablecoin settlements, paying contractors in 100+ countries with focus on international hiring. Bitwage offers over 10 years experience in crypto payroll, supporting Bitcoin and stablecoin payments as add-on to existing payroll systems.
While specific named Chinese companies using these for payroll remain limited in public reporting, the infrastructure is being built for tech startups in Web3 space, gaming companies with international developers, and e-commerce platforms with global remote teams. Chinese companies with distributed international workforces are increasingly exploring these platforms to reduce remittance costs and improve payment speed for overseas contractors.
Southeast Asian payment corridors
Singapore-China corridor demonstrates practical implementation. StraitsX issues XSGD (Singapore dollar stablecoin) as an MAS-regulated licensed issuer, processing over $8 billion in volume. The real-world application shows Chinese tourists using Alipay to scan GrabPay QR codes, with behind-the-scenes operations where Alipay purchases XSGD and transfers to Grab merchants who receive SGD settlement. Volume data shows 75% of XSGD transfers under $1 million and 25% of transfers under $10,000 (retail activity), with steady $200+ million quarterly transfer value since Q3 2022.
Thailand-Singapore's PromptPay-PayNow connection (since 2021) provides a blueprint: real-time, low-cost mobile payments with daily limit of SGD 1,000 / THB 25,000 ($735/$695) at THB 150 ($4) cost in Thailand and free in Singapore. This represents potential infrastructure for China-ASEAN payment integration with stablecoin layers on top of fast payment systems, supporting Chinese businesses operating in Southeast Asia.
Risks and challenges: regulatory, technical, and operational hazards
Regulatory risks dominate the landscape
China's June 2025 full criminalization of cryptocurrency ownership, trading, and mining creates existential legal risk for mainland entities. Using stablecoins to circumvent capital controls can result in criminal prosecution, with banks required to monitor and report crypto-related transactions. The August 2024 Supreme People's Court ruling classified using cryptocurrencies to convert criminal proceeds as criminal law violation, expanding enforcement beyond trading to include any financial manipulation using crypto.
Chinese entities face extreme difficulty accessing compliant on/off ramps within mainland China due to forex controls. All centralized exchanges were banned since 2017, with OTC trading persisting but carrying legal risks. VPN usage required to access foreign platforms is itself restricted. Yuan-to-crypto conversions are classified as illegal forex activity as of December 2024. Hong Kong provides the legal gateway, but requires extensive KYC/AML compliance, with licensed exchanges operational while maintaining separation from mainland capital controls.
Banking de-risking concerns create operational challenges. US banks increasingly wary of processing crypto-related transactions force issuers to offshore banks. Tether lacks full regulatory oversight with no authoritative body monitoring reserve investments. Circle's $3.3 billion exposure to Silicon Valley Bank demonstrated interconnected risks. Chinese entities face extreme difficulty accessing compliant on/off ramps, with Western banks hesitant to service China-linked crypto entities due to compliance costs for AML/KYC requirements and concerns about facilitating capital control circumvention.
Enforcement actions demonstrate real consequences. Chainalysis estimates $25-32 billion in stablecoins received by illicit actors in 2024 (12-16% of market cap). The UN Office of Drugs and Crime (January 2024) identified stablecoins as preferred currency for cybercriminals in Southeast Asia. $20 billion in Tether transactions through sanctioned Russian exchange Garantex are under investigation, though Tether has frozen $12 million linked to scams through its T3 Financial Crime Unit (2024) and recovered $108.8 million USDT linked to illicit activities.
Technical risks: smart contracts, congestion, and custody
Smart contract vulnerabilities caused massive losses in 2024. According to DeFiHacksLabs data, over 150 contract attack incidents resulted in losses exceeding $328 million in 2024 alone, with $9.11 billion accumulated DeFi losses according to DeFiLlama. Q1 2024 alone saw $45 million in losses across 16 incidents ($2.8 million average per exploit).
The OWASP Smart Contract Top 10 (2025) analyzed $1.42 billion in losses, identifying: Access Control Vulnerabilities ($953.2 million), Logic Errors ($63.8 million), Reentrancy Attacks ($35.7 million), Flash Loan Attacks ($33.8 million), and Price Oracle Manipulation ($8.8 million). High-profile 2024 attacks included Sonne Finance (May 2024) with $20 million exploited via Compound V2 fork vulnerability using flash loans.
Stablecoin-specific vulnerabilities show centralized stablecoins face custodial and regulatory risks, while decentralized stablecoins remain vulnerable to smart contract and oracle issues. DAI experienced depegging when USDC (40% of collateral) depegged in March 2023, demonstrating cascade contagion effects. Algorithmic stablecoins remain fundamentally flawed, as UST collapse demonstrated.
Blockchain congestion creates operational challenges. Ethereum mainnet limited to approximately 15 TPS causes high gas fees during congestion, though Layer 2 solutions (Arbitrum, Optimism) reduce fees but add complexity. Cross-chain bridges create single points of failure—the Ronin hack cost $625 million, Wormhole $325 million. Emerging solutions include Layer 2 adoption accelerating with Base costing under $0.01 versus $44 traditional wire transfer; Solana processing stablecoin transactions in 1-2 seconds at less than $0.01 fees; Circle's CCTP V2 reducing settlement from 15 minutes to seconds; and LayerZero OFT standard enabling seamless multi-chain stablecoin deployment.
Exchange and custody risks remain significant. Concentration of liquidity creates systemic vulnerability—Coinbase temporarily paused USDC redemptions during SVB crisis (March 2023). Private key management is critical with social engineering remaining the top threat. However, multi-party computation (MPC) and hardware security modules (HSM) are improving security, with institutional-grade custody now available through qualified custodians with regulatory oversight. Critically, stablecoin holders have no legal entitlement to instant redemption, being treated as unsecured creditors in bankruptcy with no legal claim to underlying assets.
De-pegging events: catastrophic precedents
TerraUST's May 2022 collapse remains the defining catastrophe. On May 7, 2022, large withdrawals (375 million UST) triggered runs, with an $85 million trade on Curve Finance overwhelming stabilization mechanisms. By May 9, UST fell to $0.35 while LUNA fell from $80 to pennies. Total losses reached $45-60 billion in ecosystem value with $400 billion broader market impact.
Root causes included unsustainable yields with Anchor paying 19.5% APY requiring $6 million daily subsidies by April 2022; algorithmic instability where UST relied solely on LUNA arbitrage without true collateral; death spiral mechanics as panicking UST holders caused LUNA to mint exponentially, diluting value; and liquidity attacks exploiting Curve 3pool vulnerability during planned liquidity migration to 4pool. The concentration risk showed 72% of UST deposited in Anchor, with wealthier investors exiting first with smaller losses while retail investors who "bought the dip" suffered most. Luna Foundation Guard's $480 million Bitcoin reserves proved insufficient to restore peg.
USDC's March 2023 de-pegging from Silicon Valley Bank collapse revealed how traditional banking risks contaminate stablecoins. On March 10, 2023, SVB failure revealed Circle held $3.3 billion (~8% of reserves) with the failed bank. USDC fell to $0.87 (13% depeg) on Saturday March 11, with Coinbase suspending USDC-USD conversions over the weekend when banks were closed. Cascade effects included DAI depegging to $0.85 (40% collateral was USDC), FRAX also affected due to USDC exposure, and approximately 3,400 automatic liquidations on Aave worth $24 million collateral (86% USDC).
Recovery occurred by Monday after FDIC waived $250,000 insurance limit, but S&P Research findings (June 2023) showed USDC was below $0.90 for 23 minutes (longest depeg), DAI below $0.90 for 20 minutes, USDT only dipped below $0.95 for 1 minute, and BUSD never dropped below $0.975. Frequency analysis revealed USDC and DAI depegged far more often than USDT over the 24-month period. Post-crisis, Circle expanded banking partnerships (BNY Mellon, Cross River), increased reserve diversification, and enhanced transparency through monthly attestations.
Tether transparency concerns persist despite its relative stability. Historical problems include 2018 claims of $2.55 billion reserves backing $2.54 billion USDT supported only by law firm report (not audit); 2019 New York Attorney General investigation revealing only 74% backing by cash/equivalents; 2021 CFTC fine of $41 million for false statements about dollar backing; and reserves held for only 27.6% of time during 2016-2018 sample period per CFTC findings.
Current reserve composition (Q2 2024) shows $100 billion+ in U.S. Treasury bonds, 82,000+ Bitcoin (~$5.5 billion value), 48 metric tons of gold, and over $120 billion total reserves with $5.6 billion surplus (Q1 2025). However, discrepancy exists between $120 billion reserves and 150 billion+ USDT circulation. Tether maintains no comprehensive audit from Big Four accounting firm (only quarterly attestations from BDO), with $6.57 billion in "secured loans" (up from $4.7 billion in Q1 2024) having unclear composition. Reliance on offshore banks without authoritative reserve monitoring earned S&P risk rating of 4 out of 5 (December 2023).
Operational challenges: on-ramps, banking, and taxation
Mainland China restrictions make on/off ramps extremely difficult. All centralized exchanges banned since 2017, with OTC trading persisting but carrying legal risks. VPN usage required to access foreign platforms is itself restricted. Yuan-to-crypto conversions classified as illegal forex activity (December 2024). Hong Kong provides gateway through licensed exchanges operational with KYC/AML compliance requirements. AxCNH listed on ATAIX Eurasia (Kazakhstan) targets Chinese firms, with Zoomlion ($3.3 billion offshore revenue) signed to use AxCNH for settlements. PBOC Shanghai center developing cross-border digital payment platform.
Global access challenges include off-ramp liquidity fragmented across 100+ blockchains, cross-chain bridge security concerns following major hacks, weekend/holiday conversion limited by traditional banking hours (SVB crisis example), though Real-Time Payments (RTP) and FedNow may eventually enable 24/7 fiat settlement.
Banking relationships pose correspondent banking issues where Western banks hesitate to service China-linked crypto entities. Compliance costs high due to AML/KYC requirements, with SWIFT dominance at $5 trillion daily versus China's CIPS at $200+ billion processed but growing. Banking relationships essential for institutional-scale stablecoin operations. Institutional solutions emerging include Stripe's $1.1 billion acquisition of Bridge (stablecoin infrastructure) signaling fintech integration, PayPal and SAP offering native stablecoin support, Coinbase and Circle pursuing banking licenses under favorable US regulatory environment, and regional API providers differentiating on compliance and service.
Tax implications and reporting create complexity. Post-June 2025 ban makes crypto tax largely irrelevant for mainland individuals, though previous unreported crypto gains subject to capital gains treatment. Cross-border transactions monitored for capital flight, while Hong Kong provides clearer framework with stablecoin regulatory clarity. International compliance requires FATF Travel Rule adoption by China for international transactions, wallet registration for traceability, Chinese entities using offshore structures facing complex multi-jurisdictional reporting, and capital losses from depegging events requiring classification based on business versus capital treatment.
Future trends: e-CNY expansion, institutional adoption, and technology evolution
Central Bank Digital Currency: e-CNY's international push
China's digital yuan (e-CNY) represents the government's strategic alternative to private stablecoins, with massive domestic deployment and expanding international ambitions. As of 2025, the e-CNY achieved 261 million individual wallets opened, $7.3 trillion cumulative transaction value (up from $1 trillion mid-2024), 180 million individual users (July 2024), and operations in 29 cities across 17 provinces, used for metro fares, government wages, and merchant payments.
September 2025 marked a critical inflection point when PBOC inaugurated the International Operations Center in Shanghai with three platforms: a cross-border digital payment platform exploring e-CNY for international transactions; a blockchain service platform providing standardized cross-chain transaction transfers; and a digital asset platform integrating with existing financial infrastructure.
Project mBridge represents wholesale CBDC infrastructure through collaboration with Bank for International Settlements (BIS), with 11+ central banks in trials as of 2024 expanding to 15 new countries in 2025. The 2025 projection targets $500 billion annually through mBridge, with 2030 scenarios suggesting 20-30% of China's foreign trade could use e-CNY rails.
Belt and Road Integration shows ASEAN trade volume in RMB reaching 5.8 trillion yuan, with e-CNY used for oil transactions. The China-Laos Railway and Jakarta-Bandung High-Speed Rail accept e-CNY. UnionPay expanded e-CNY network to 30+ countries with Cambodia and Vietnam focus, targeting the Belt and Road corridor.
China's strategic objectives include countering USD stablecoin dominance (99% of stablecoin activity is dollar-denominated), circumventing SWIFT sanctions potential, enabling offline payments for rural areas and in-flight use, and programmable sovereignty through code-based capital controls and transaction limits.
Challenges remain substantial: yuan represents only 2.88% of global payments (June 2024), down from 4.7% peak (July 2024), with capital controls limiting convertibility. Competition from established WeChat Pay/Alipay (90%+ market share) domestically limits e-CNY adoption enthusiasm. USD still commands 47%+ of global payments with euro at 23%, making yuan internationalization a long-term strategic challenge.
Institutional adoption: projections through 2030
Market growth projections vary widely but all point upward. Conservative estimates from Bernstein project $3 trillion by 2028, Standard Chartered forecasts $2 trillion by 2028, from current $240-250 billion (Q1 2025). Aggressive forecasts include futurist predictions of $10+ trillion by 2030 based on GENIUS Act regulatory clarity, Citi GPS $2 trillion by 2028 potentially higher with corporate adoption, and McKinsey suggesting daily transactions could reach $250 billion in next 3 years.
Transfer volume data shows 2024 reached $27.6 trillion total (exceeding Visa + Mastercard combined), with daily real payment transactions at $20-30 billion (remittances + settlements). Currently representing less than 1% of global money transfer volume but doubling every 18 months, Q1 2025 remittances reached 3% of $200 trillion global cross-border payments.
Banking sector developments include JPMorgan's JPM Coin processing over $1 billion daily in tokenized deposit settlements. Citibank, Goldman Sachs, and UBS experiment via Canton Network. US banks discuss joint stablecoin issuance, with 50%+ of financial institutions reporting stablecoin infrastructure readiness (2025 survey).
Corporate adoption shows Stripe's Bridge acquisition for $1.1 billion signaling fintech integration, PayPal launching PYUSD ($38 million issued January 2025, though slowing), retailers exploring branded stablecoins (Amazon, Walmart predicted 2025-2027), and Standard Chartered launching Hong Kong dollar-pegged stablecoin.
Academic and institutional research shows 60% of institutional investors prefer stablecoins (Harvard Business Review 2024), MIT Digital Currency Initiative conducting active research, 200+ new academic papers on stablecoins published in 2025, and Stanford launching Stablecoin and Digital Assets Lab.
Regulatory evolution and compliance frameworks
United States GENIUS Act impact creates dual role for Federal Reserve as gatekeeper and infrastructure provider. Bank-issued stablecoins anticipated to dominate with compliance infrastructure, tier-2 banks forming consortiums for scale, and regional banks relying on tech stack providers (Fiserv, FIS, Velera). The framework expected to generate $1.75 trillion in new dollar stablecoins by 2028, viewed by China as strategic threat to yuan internationalization, spurring China's accelerated Hong Kong stablecoin framework and support for CNH-pegged stablecoins offshore.
European Union MiCA fully applicable since late 2024, prohibits interest payments limiting adoption (largest EU stablecoin only €200 million versus USDC $60 billion), imposes stringent reserve requirements and liquidity management, with 18-month grace period ending July 2026.
Asia-Pacific frameworks show Singapore and Hong Kong creating supportive frameworks attracting issuers. Hong Kong stablecoin licenses creating compliant CNH-pegged options, Japan regulatory clarity enabling expansion, with 88% of North American firms viewing regulations favorably (2025 survey).
Cross-jurisdictional challenges include the same stablecoin being treated as payment instrument, security, or deposit in different countries. Extraterritorial regulations create compliance complexity, regulatory fragmentation forces issuers to choose markets or adopt complex structures, and enforcement risks persist even without clear guidelines.
Technology improvements: Layer 2 scaling and cross-chain interoperability
Layer 2 scaling solutions dramatically reduce costs and increase speed. Major networks in 2025 include: Arbitrum using high-speed Ethereum scaling via optimistic rollups; Optimism with reduced fees while maintaining Ethereum security; Polygon achieving 65,000 TPS with 28,000+ contract creators, 220 million unique addresses, and $204.83 million TVL; Base (Coinbase L2) with under $0.01 transaction costs; zkSync using zero-knowledge rollups for trustless scaling; and Loopring achieving 9,000 TPS for DEX operations.
Cost reductions are dramatic: Base charges less than $0.01 versus $44 traditional wire; Solana stablecoins achieve 1-2 seconds settlement at less than $0.01 fees; Ethereum gas fees significantly reduced via L2 bundling.
Cross-chain interoperability advances through leading protocols. LayerZero OFT Standard enables Ethena's USDe deployment across 10+ chains with $50 million USD weekly cross-chain volume. Circle CCTP V2 reduces settlement from 15 minutes to seconds. Wormhole and Cosmos IBC move beyond lock-and-mint to message-passing validation. USDe averaged $230 million+ monthly cross-chain volume since inception, while CCTP transferred $3+ billion volume last month.
Bridge evolution moves away from vulnerable "lock-and-mint" models toward light-client validation and message-passing, with native interoperability becoming standard rather than optional. Stablecoin issuers leverage protocols to reduce operational costs. Market impact shows stablecoin transactions across Layer 2s growing rapidly, with USDC on Arbitrum facilitating major Uniswap markets. Binance Smart Chain and Avalanche run major fiat-backed tokens. The multi-chain reality means stablecoins must be natively interoperable for success.
Expert predictions and industry outlook
McKinsey insights suggest "2025 may witness material shift across payments industry," with stablecoins transcending banking hours and global borders. True scaling requires paradigm shift from currency settlement to stablecoin retention, with financial institutions needing to integrate or risk irrelevance.
Citi GPS predicts "2025 will be blockchain's ChatGPT moment" with stablecoins igniting transformation. Issuance jumped from $200 billion (early 2025) to $280 billion (mid-2025), with institutional adoption accelerating through company listings and record fundraising.
Fireblocks 2025 survey found 90% of firms taking action on stablecoins today, with 48% citing speed as top benefit (cost cited last), 86% reporting infrastructure readiness, and 9 in 10 saying regulations drive adoption.
Regional insights show Latin America at 71% using stablecoins for cross-border payments (highest globally), Asia with 49% citing market expansion as primary driver, North America with 88% viewing regulations as green light rather than barrier, and Europe with 42% citing legacy risks and 37% demanding safer rails.
Security focus reveals 36% say better protection will drive scale, 41% demand speed, 34% require compliance as non-negotiable, with real-time threat detection becoming essential and enterprise-grade security fundamental to scaling.
Expert warnings from Atlantic Council's Ashley Lannquist highlight network transaction fees often overlooked, fragmentation of money across multiple stablecoins, wallet compatibility issues, bank deposit/liquidity challenges, and lack of legal entitlement to reserves (unsecured creditors).
Academic perspectives include Stanford's Darrell Duffie noting e-CNY enables Chinese surveillance of foreign businesses, Harvard research revealing TerraUST collapse information asymmetries where wealthy exited first, and Federal Reserve analysis showing algorithmic stablecoins as fundamentally flawed designs.
Timeline predictions for 2025-2027 include GENIUS Act framework solidifying corporate adoption, major retailers launching branded stablecoins, traditional payment companies pivoting or declining, and banking deposits beginning to flee to yield-bearing stablecoins. For 2027-2030: emerging markets achieving mass stablecoin adoption, energy and commodity tokenization scaling globally, universal interoperability creating unified global payment system, and AI-driven commerce emerging at massive scale. For 2030-2035: programmable money enabling impossible business models, complete payment system transformation, and stablecoins potentially reaching $10+ trillion in aggressive scenarios.
Strategic implications for Chinese cross-border business
Chinese companies face a complex calculus in adopting stablecoins for international expansion. The technology delivers undeniable benefits: 50-80% cost savings, settlement times reduced from days to minutes, 24/7 liquidity, and elimination of correspondent banking friction. Major Chinese enterprises including JD.com ($74-75 billion target for its stablecoins), Ant Group (applying across three jurisdictions), and Zoomlion ($3.3 billion offshore revenue using AxCNH) demonstrate real-world viability through Hong Kong's regulatory framework.
However, risks remain substantial. China's June 2025 full criminalization of crypto creates existential legal exposure for mainland operations. The March 2023 USDC depeg to $0.87 and May 2022 TerraUST collapse ($45-60 billion lost) demonstrate catastrophic potential. Tether's opacity—never completing a full independent audit, only backed 27.6% of time during 2016-2018 per CFTC, though now holding $120+ billion reserves—poses systemic concerns. Smart contract vulnerabilities caused $328+ million in 2024 losses alone, with over 150 attack incidents.
The dual-track approach China has adopted—strict mainland prohibition with Hong Kong experimentation—creates a viable pathway. PBOC Governor Pan Gongsheng's June 2025 acknowledgment that stablecoins are "reshaping the global payment system" signals policy evolution from complete rejection to strategic engagement. Hong Kong's August 1, 2025 effective stablecoin framework provides legal infrastructure for CNH-pegged stablecoins targeting Belt and Road trade ($3.2 trillion annually).
Yet the geopolitical dimension cannot be ignored. The US GENIUS Act aims to "maintain USD dominance amid China's digital currency challenge," generating an expected $1.75 trillion in new dollar stablecoins by 2028. Ninety-nine percent of current stablecoin activity is dollar-denominated, extending American monetary hegemony into digital finance. China's response—accelerating e-CNY international expansion through Project mBridge ($500 billion target for 2025, 20-30% of Chinese trade by 2030)—represents strategic competition where stablecoins serve as proxies for currency influence.
For Chinese enterprises, the strategic recommendations are:
First, utilize Hong Kong-licensed operations exclusively for legal compliance, avoiding mainland exposure to criminal liability. JD.com, Ant Group, and Standard Chartered's participation in HKMA's sandbox demonstrates this pathway's viability.
Second, diversify across multiple stablecoins (USDC, USDT, potentially AxCNH) to avoid concentration risk, maintaining 10-15% reserves in fiat as contingency for depegging events. The SVB crisis demonstrated cascade effects where 40% USDC collateral exposure caused DAI to depeg to $0.85.
Third, implement robust custody solutions with qualified custodians using multi-party computation (MPC) and hardware security modules (HSM), recognizing that stablecoin holders are unsecured creditors with no legal claim to reserves in bankruptcy.
Fourth, monitor e-CNY international expansion as the primary long-term strategic option. The September 2025 PBOC International Operations Center in Shanghai with cross-border digital payment platform, blockchain service platform, and digital asset platform represents state-backed infrastructure that will ultimately receive government preference over private stablecoins for Chinese companies.
Fifth, maintain contingency plans recognizing regulatory uncertainty. The same technology treated as payment instrument in Singapore may be deemed security in one US state and deposit in another, creating enforcement risks even without clear guidelines.
The 2025-2027 period represents a critical window as the GENIUS Act framework solidifies, MiCA's 18-month transition period ends (July 2026), and Hong Kong's licensing regime matures. Chinese companies that establish compliant stablecoin capabilities now—through proper legal structures, qualified custody, diversified banking relationships, and real-time compliance monitoring—will capture first-mover advantages in efficiency gains while the 90% of firms globally "taking action" on stablecoins reshape cross-border payment infrastructure.
The fundamental tension between dollar-backed stablecoins extending US monetary hegemony and China's digital yuan ambitions will define the next decade of international finance. Chinese companies navigating this landscape must balance immediate operational benefits against long-term strategic alignment, recognizing that today's efficiency gains through USDC and USDT may tomorrow face policy reversal if geopolitical tensions escalate. The Hong Kong gateway—with CNH-pegged stablecoins for Belt and Road trade and eventual e-CNY integration—offers the most sustainable path for Chinese enterprises seeking to modernize cross-border payments while remaining aligned with national strategy.
Stablecoins are not merely a technological upgrade to SWIFT—they represent a fundamental restructuring of global payment architecture where programmable money, 24/7 settlement, and blockchain transparency create entirely new business models. Chinese companies that master this infrastructure through compliant pathways will thrive in the next era of international commerce, while those that ignore these developments risk competitive obsolescence as the rest of the world settles transactions in seconds for fractions of traditional costs.
