28 posts tagged with "Regulation"

For every dollar in trading fees the Trump crypto creators raked in, investors lost $20. That's the damning ratio from a forensic analysis commissioned by The New York Times, revealing a financial asymmetry that has turned the $TRUMP meme coin into the most controversial crypto asset of the decade—and potentially the most significant threat to bipartisan crypto regulation in the United States.

The Official Trump token, launched on January 17, 2025, three days before his presidential inauguration, has become ground zero for a collision between cryptocurrency innovation, political power, and fundamental questions about conflicts of interest. With 813,294 wallets losing a combined $2 billion while Trump-affiliated entities collected over $300 million in fees, the coin has drawn comparisons to the "single worst conflict of interest in the modern history of the presidency."

The Rise and Fall of Presidential Crypto​

The numbers tell a dramatic story of euphoria turned to ash. At its peak, less than two days after launch, TRUMP reached an all-time high of \73.43, giving the token a market cap exceeding $27 billion and valuing Trump's personal holdings at over $20 billion. Today, the token trades around $5.18—an 89% collapse that has devastated retail investors while the project's insiders remain largely untouched.

The mechanics reveal why. Of the 1 billion total TRUMP tokens created, only 200 million (20%) were released to the public. The remaining 800 million tokens are locked in vesting schedules controlled by Trump Organization affiliates CIC Digital LLC and Fight Fight Fight LLC. This concentration means that approximately 40 wallets—mostly associated with Trump-related entities—control more than 90% of the combined supply of TRUMP and MELANIA coins, while retail investors hold less than 10%.

The vesting schedule creates recurring pressure points. In April 2025, a 40 million token unlock worth approximately $320 million hit the market—representing 20% of the circulating supply and 75% of the token's 24-hour trading volume. In January 2026, another 50 million tokens ($270 million at current prices) were scheduled for release. These unlocks typically correlate with 15-30% price declines, though market reactions have proven unpredictable.

The Ethics Firestorm​

"The minute that Trump coin got launched, it went from 'crypto is bipartisan' to 'crypto equals Trump equals bad, equals corruption,'" warned Cardano founder Charles Hoskinson. His concern has proven prescient.

Norm Eisen, former White House ethics adviser under Obama, declared the meme coin launch "the single worst conflict of interest in the modern history of the presidency." Richard Painter, the top ethics lawyer for George W. Bush, called it "dangerous to have the people who are supposed to oversee regulating financial instruments investing in them at the same time."

The concerns extend beyond theoretical conflicts. In April 2025, the project announced that the top 220 holders would receive dinner with the president, with the top 25 earning VIP White House tours. The token jumped 50% on the news—a direct monetization of presidential access that critics argue violates the spirit, if not the letter, of anti-corruption laws.

The global and anonymous nature of cryptocurrency creates additional risks. Lawmakers have warned that foreign actors could purchase large amounts of $TRUMP or$MELANIA coins to gain influence with the administration, potentially violating the Constitution's emoluments clause prohibiting government officials from accepting payments from foreign entities without congressional approval.

On November 25, 2025, Representative Jamie Raskin released a House Judiciary Committee report finding that Trump's cryptocurrency policies were used to benefit Trump and his family, adding "billions of dollars to his net worth through cryptocurrency schemes entangled with foreign governments, corporate allies, and criminal actors."

The Legislative Response​

Congress has attempted to address the conflict. Senator Reed and Senator Merkley introduced the End Crypto Corruption Act, which would ban the President, Vice President, Senior Executive Branch Officials, Members of Congress, and their immediate families from financially benefiting from issuing, endorsing, or sponsoring crypto assets.

Representative Sam Liccardo introduced the Modern Emoluments and Malfeasance Enforcement Act (MEME Act), targeting the same prohibitions. Senator Warren and Representative Auchincloss have opened investigations into "consumer ripoffs, foreign influence-peddling, and conflicts of interest."

Yet legislative momentum faces the reality of a crypto-friendly administration. As President Trump moves to loosen regulations and pledges to make the U.S. the "crypto capital of the world," enforcement pressure has eased. The regulatory environment remains fluid rather than clearly settled, with politically branded tokens sitting in a grey area that neither traditional securities law nor emerging crypto frameworks adequately address.

MELANIA: The Pattern Repeats​

The First Lady's $MELANIA token, launched on January 20, 2025—Inauguration Day itself—has followed an even more devastating trajectory. The token has collapsed 99% from its peak, with creators now facing fraud accusations in court.

A proposed lawsuit accuses Benjamin Chow (cofounder of crypto exchange Meteora) and Hayden Davis (cofounder of Kelsier Labs) of conspiring to run pump-and-dump schemes on over a dozen meme coins, including $MELANIA. The complaint alleges they "weaponized fame" to defraud investors.

The parallel trajectories of the Trump family coins—one down 89%, the other down 99%—reveal a pattern where insider access to supply, timing of announcements, and control over vesting schedules create persistent information asymmetries that retail investors cannot overcome.

PolitiFi: Beyond Trump​

The Trump meme coin phenomenon has spawned an entire category: PolitiFi (Political Finance). These tokens draw inspiration from political figures, events, and ideologies, combining "political satire and financial nihilism" into tradeable assets.

At its January 2025 peak, the PolitiFi sector reached a combined market cap exceeding $7.6 billion, with TRUMP alone accounting for \6.5 billion. By year-end 2025, the broader meme coin ecosystem had contracted 61% to $38 billion in market cap, with trading volume down 65% to $2.8 billion.

Beyond Trump and Melania, the PolitiFi landscape includes Department of Government Efficiency (DOGE) tokens, satirical candidates like Doland Tremp (TREMP) and Kamala Horris (KAMA), and election-cycle speculation vehicles. These tokens function as "decentralized political action committees"—lightning rods for political sentiment that bypass traditional campaign finance structures.

The 2026 U.S. midterm elections are expected to reignite PolitiFi volatility. Analysts predict meme coins will "fuse with AI, prediction markets, and PolitiFi volatility" as the sector evolves. Political meme coins create "intense but short-lived trading opportunities" tied to real-world events—election cycles, legislative votes, presidential announcements.

The Regulatory Paradox​

The Trump meme coin has created a paradox for crypto regulation. The same administration loosening crypto oversight has the most to gain from that loosening—a circular conflict that makes neutral policymaking virtually impossible.

Critics argue this could poison the well for broader crypto adoption. Hoskinson's warning that Trump's involvement has "politicized the regulatory debate" suggests that future Democratic administrations may take harder lines on crypto specifically because of the association with Trump-era conflicts.

The uncertainty cuts both ways. While enforcement pressure has eased under the current administration, increased scrutiny around disclosure, ethics, and foreign participation in Trump-linked projects could indirectly affect trading activity. By 2027, analysts warn, "the bigger risk may be that TRUMP makes crypto regulation messier, not easier."

What Retail Investors Should Understand​

For retail participants, the TRUMP coin offers brutal lessons:

Supply concentration matters. When 80% of tokens are held by project insiders on vesting schedules, retail investors are playing against house odds. The asymmetric information—insiders know their unlock schedules and can time announcements accordingly—creates structural disadvantages.

Political tokens are event-driven. TRUMP moved hardest when there were "concrete hooks that tied token ownership to visibility, narrative, or momentum." The dinner announcement, the inauguration timing, the unlock surprises—these are manufactured catalysts that benefit those who create them.

Fame is not fundamentals. Unlike DeFi protocols with revenue, NFT projects with IP, or infrastructure tokens with network effects, meme coins derive value purely from attention. When attention fades—as it inevitably does—there's nothing underneath to support price.

The $20-to-$1 ratio. The forensic finding that investors lost $20 for every $1 in fees collected by creators isn't an anomaly—it's the business model. Meme coins, especially those with concentrated supply, are designed to transfer wealth from late entrants to early insiders.

The Bigger Picture​

The Trump meme coin saga represents something larger than one controversial asset. It's a stress test for whether cryptocurrency can maintain credibility as it intersects with political power.

The original crypto ethos—decentralization, permissionless access, freedom from institutional gatekeepers—sits uneasily alongside a project where the President of the United States controls 80% of supply and can move markets with a dinner invitation. The tension between "crypto for the people" and "crypto for the powerful" has never been starker.

Whether this chapter ends with stronger disclosure requirements, political ethics reforms, or simply fades as another meme coin burns out remains uncertain. What's clear is that the TRUMP token has permanently altered how policymakers, investors, and the public view the intersection of cryptocurrency and power.

The question isn't whether politically branded tokens will continue—they will, especially around election cycles. The question is whether the crypto industry can build frameworks that distinguish legitimate innovation from conflicts of interest, and whether it has the will to try.

---

This article is for informational purposes only and does not constitute financial, legal, or investment advice. Meme coins are highly speculative assets with significant risk of total loss. Always conduct thorough research before making any investment decisions.

For years, Wall Street dismissed stablecoins as crypto's answer to a problem nobody had. Now, every major U.S. bank is racing to issue one. SoFi just became the first nationally chartered bank to launch a stablecoin on a public blockchain. JPMorgan, Bank of America, Citigroup, and Wells Fargo are reportedly in talks to launch a joint stablecoin through their shared payment infrastructure. And somewhere in Washington, the GENIUS Act has finally given banks the regulatory clarity they've been waiting for.

The stablecoin market has surpassed $317 billion—up 50% from last year—and institutions are no longer asking if they should participate. They're asking how fast they can get there before their competitors do.

In the span of two weeks, two of Europe's largest banks announced they're offering Bitcoin trading to millions of retail customers. Belgium's KBC Group, the country's second-largest lender with $300 billion in assets, will launch crypto trading in February 2026. Germany's DZ Bank, managing over €660 billion, secured MiCA approval in January to roll out Bitcoin, Ethereum, Cardano, and Litecoin trading through its network of cooperative banks. These aren't fintech startups or crypto-native exchanges—they're century-old institutions that once dismissed digital assets as speculative noise.

The common thread? MiCA. The European Union's Markets in Crypto-Assets Regulation has become the regulatory catalyst that finally gave banks the legal clarity to enter a market they've watched from the sidelines for a decade. With over 60 European banks now offering some form of crypto service and more than 50% planning MiCA partnerships by 2026, the question is no longer whether traditional finance will embrace crypto—it's how quickly the transition will happen.

The Treasury Department has dropped a bombshell estimate: $6.6 trillion in bank deposits could be at risk if stablecoin yield programs persist. That single number has transformed a technical legislative debate into an existential battle between traditional banking and the crypto industry—and the outcome will reshape how hundreds of millions of dollars flow through the financial system annually.

At the heart of this conflict sits a perceived "loophole" in the GENIUS Act, the landmark stablecoin legislation President Trump signed into law in July 2025. While the law explicitly bans stablecoin issuers from paying interest or yield directly to holders, it says nothing about third-party platforms doing the same. Banks call it a regulatory oversight that threatens Main Street deposits. Crypto companies call it intentional design that preserves consumer choice. With the Senate Banking Committee now debating amendments and Coinbase threatening to withdraw support from related legislation, the stablecoin yield wars have become 2026's most consequential financial policy fight.

Ninety percent. That's the share of Brazil's $319 billion annual crypto volume flowing through stablecoins—a figure that caught regulators' attention and triggered Latin America's most comprehensive crypto framework. When Banco Central do Brasil finalized its three-part regulatory package in November 2025, it didn't just tighten rules on exchanges. It fundamentally reshaped how the region's largest economy treats dollar-pegged digital assets, with implications rippling from Sao Paulo to Buenos Aires.

In July 2025, President Trump signed the GENIUS Act into law—America's first federal legislation on digital assets. The House passed the CLARITY Act with a 294-134 bipartisan vote. And an executive order established a Strategic Bitcoin Reserve holding 198,000 BTC. After years of "regulation by enforcement," the United States is finally building a comprehensive crypto framework. But with the CLARITY Act stalled in the Senate and economists skeptical of Bitcoin reserves, will 2026 deliver the regulatory clarity the industry has demanded—or more gridlock?

Tether made $10 billion in profit through the first three quarters of 2025—more than Bank of America. Coinbase earns roughly $1.5 billion annually just from its revenue-sharing deal with Circle. Meanwhile, the combined market share of USDT and USDC has slipped from 88% to 82%, as a new generation of challengers chips away at the duopoly. Welcome to the most profitable corner of crypto that most people don't fully understand.

In early 2024, yield-bearing stablecoins held about $1.5 billion in total supply. By mid-2025, that figure had exploded past $11 billion—a 7x increase that represents the fastest-growing segment of the entire stablecoin market.

The appeal is obvious: why hold dollars that earn nothing when you could hold dollars that earn 7%, or 15%, or even 20%? But the mechanisms generating these yields are anything but simple. They involve derivatives strategies, perpetual futures funding rates, Treasury bills, and complex smart contract systems that even experienced DeFi users struggle to fully understand.

And just as this new category gained momentum, regulators stepped in. The GENIUS Act, signed into law in July 2025, explicitly prohibits stablecoin issuers from offering yield to retail customers. Yet instead of killing yield-bearing stablecoins, the regulation triggered a flood of capital into protocols that found ways to stay compliant—or operate outside U.S. jurisdiction entirely.

This is the story of how stablecoins evolved from simple dollar pegs into sophisticated yield-generating instruments, who's winning the battle for $310 billion in stablecoin capital, and what risks investors face in this new paradigm.

The Market Landscape: $33 Trillion in Motion​

Before diving into yield mechanisms, the scale of the stablecoin market deserves attention.

Stablecoin transaction volumes soared 72% to hit $33 trillion in 2025, according to Artemis Analytics. Total supply reached nearly $310 billion by mid-December—up more than 50% from $205 billion at the start of the year. Bloomberg Intelligence projects stablecoin payment flows could reach $56.6 trillion by 2030.

The market remains dominated by two giants. Tether's USDT holds about 60% market share with $186.6 billion in circulation. Circle's USDC commands roughly 25% with $75.12 billion. Together they control 85% of the market.

But here's the interesting twist: USDC led transaction volume with $18.3 trillion, beating USDT's $13.3 trillion despite having a smaller market cap. This higher velocity reflects USDC's deeper DeFi integration and regulatory compliance positioning.

Neither USDT nor USDC offers yield. They're the stable, boring bedrock of the ecosystem. The action—and the risk—lives in the next generation of stablecoins.

How Ethena's USDe Actually Works​

Ethena's USDe emerged as the dominant yield-bearing stablecoin, reaching over $9.5 billion in circulation by mid-2025. Understanding how it generates yield requires understanding a concept called delta-neutral hedging.

The Delta-Neutral Strategy​

When you mint USDe, Ethena doesn't just hold your collateral. The protocol takes your ETH or BTC, holds it as the "long" position, and simultaneously opens a short perpetual futures position of the same size.

If ETH rises 10%, the spot holdings gain value, but the short futures position loses an equivalent amount. If ETH falls 10%, the spot holdings lose value, but the short futures position gains. The result is delta-neutral—price movements in either direction cancel out, maintaining the dollar peg.

This is clever, but it raises an obvious question: if price movements net to zero, where does the yield come from?

The Funding Rate Engine​

Perpetual futures contracts use a mechanism called funding rates to keep their prices aligned with spot markets. When the market is bullish and more traders are long than short, longs pay shorts a funding fee. When the market is bearish, shorts pay longs.

Historically, crypto markets trend bullish, meaning funding rates are positive more often than negative. Ethena's strategy collects these funding payments continuously. In 2024, sUSDe—the staked version of USDe—delivered an average APY of 18%, with peaks touching 55.9% during the March 2024 rally.

The protocol adds additional yield from staking a portion of its ETH collateral (earning Ethereum's native staking yield) and from interest on liquid stablecoin reserves held in instruments like BlackRock's BUIDL tokenized Treasury fund.

The Risks Nobody Wants to Discuss​

The delta-neutral strategy sounds elegant, but it carries specific risks.

Funding Rate Reversal: During sustained bear markets, funding rates can turn negative for extended periods. When this happens, Ethena's short positions pay longs instead of receiving payments. The protocol maintains a reserve fund to cover these periods, but a prolonged downturn could drain reserves and force yield rates to zero—or worse.

Exchange Risk: Ethena holds its futures positions on centralized exchanges like Binance, Bybit, and OKX. While collateral is held with off-exchange custodians, the counterparty risk of exchange insolvency remains. An exchange failure during volatile markets could leave the protocol unable to close positions or access funds.

Liquidity and Depeg Risk: If confidence in USDe falters, a wave of redemptions could force the protocol to unwind positions rapidly in illiquid markets, potentially breaking the peg.

During August 2024, when funding rates compressed, sUSDe yields dropped to about 4.3%—still positive, but far from the double-digit returns that attracted initial capital. Recent yields have ranged between 7% and 30% depending on market conditions.

Sky's USDS: The MakerDAO Evolution​

While Ethena bet on derivatives, MakerDAO (now rebranded as Sky) took a different path for its yield-bearing stablecoin.

From DAI to USDS​

In May 2025, MakerDAO completed its "Endgame" transformation, retiring the MKR governance token, launching SKY at a 24,000:1 conversion ratio, and introducing USDS as the successor to DAI.

USDS supply surged from 98.5 million to 2.32 billion in just five months—a 135% increase. The Sky Savings Rate platform reached $4 billion in TVL, growing 60% in 30 days.

Unlike Ethena's derivatives strategy, Sky generates yield through more traditional means: lending revenue from the protocol's credit facilities, fees from the stablecoin operations, and interest from real-world asset investments.

The Sky Savings Rate​

When you hold sUSDS (the yield-bearing wrapped version), you automatically earn the Sky Savings Rate—currently around 4.5% APY. Your balance increases over time without needing to lock, stake, or take any action.

This is lower than Ethena's typical yields, but it's also more predictable. Sky's yield comes from lending activity and Treasury exposure rather than volatile funding rates.

Sky activated USDS rewards for SKY stakers in May 2025, distributing over $1.6 million in the first week. The protocol now allocates 50% of revenue to stakers, and spent $96 million in 2025 on buybacks that reduced SKY's circulating supply by 5.55%.

The $2.5 Billion Institutional Bet​

In a significant move, Sky approved a $2.5 billion USDS allocation to Obex, an incubator led by Framework Ventures targeting institutional-grade DeFi yield projects. This signals Sky's ambition to compete for institutional capital—the largest untapped pool of potential stablecoin demand.

The Frax Alternative: Chasing the Fed​

Frax Finance represents perhaps the most ambitious regulatory strategy in yield-bearing stablecoins.

Treasury-Backed Yield​

Frax's sFRAX and sfrxUSD stablecoins are backed by short-term U.S. Treasuries, purchased through a lead bank brokerage relationship with a Kansas City bank. The yield tracks the Federal Reserve's rates, currently delivering around 4.8% APY.

Over 60 million sFRAX are currently staked. While yields are lower than Ethena's peaks, they're backed by the U.S. government's credit rather than crypto derivatives—a fundamentally different risk profile.

The Fed Master Account Gambit​

Frax is actively pursuing a Federal Reserve master account—the same type of account that banks use for direct access to Fed payment systems. If successful, this would represent unprecedented integration between DeFi and traditional banking infrastructure.

The strategy positions Frax as the most regulation-compliant yield-bearing stablecoin, potentially appealing to institutional investors who can't touch Ethena's derivatives exposure.

The GENIUS Act: Regulation Arrives​

The Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act), signed in July 2025, brought the first comprehensive federal framework for stablecoins—and immediate controversy.

The Yield Prohibition​

The act explicitly prohibits stablecoin issuers from paying interest or yield to holders. The intent is clear: prevent stablecoins from competing with bank deposits and FDIC-insured accounts.

Banks lobbied hard for this provision, warning that yield-bearing stablecoins could drain $6.6 trillion from the traditional banking system. The concern isn't abstract: when you can earn 7% on a stablecoin versus 0.5% in a savings account, the incentive to move money is overwhelming.

The Loophole Problem​

However, the act doesn't explicitly prohibit affiliated third parties or exchanges from offering yield-bearing products. This loophole allows protocols to restructure so that the stablecoin issuer doesn't directly pay yield, but an affiliated entity does.

Banking groups are now lobbying to close this loophole before implementation deadlines in January 2027. The Bank Policy Institute and 52 state banking associations sent a letter to Congress arguing that exchange-offered yield programs create "high-yield shadow banks" without consumer protections.

Ethena's Response: USDtb​

Rather than fight regulators, Ethena launched USDtb—a U.S.-regulated variant backed by tokenized money-market funds rather than crypto derivatives. This makes USDtb compliant with GENIUS Act requirements while preserving Ethena's infrastructure for institutional customers.

The strategy reflects a broader pattern: yield-bearing protocols are forking into compliant (lower yield) and non-compliant (higher yield) versions, with the latter increasingly serving non-U.S. markets.

Comparing the Options​

For investors navigating this landscape, here's how the major yield-bearing stablecoins stack up:

sUSDe (Ethena): Highest potential yields (7-30% depending on market conditions), but exposed to funding rate reversals and exchange counterparty risk. Largest market cap among yield-bearing options. Best for crypto-native users comfortable with derivatives exposure.

sUSDS (Sky): Lower but more stable yields (~4.5%), backed by lending revenue and RWAs. Strong institutional positioning with the $2.5B Obex allocation. Best for users seeking predictable returns with lower volatility.

sFRAX/sfrxUSD (Frax): Treasury-backed yields (~4.8%), most regulatory compliant approach. Pursuing Fed master account. Best for users prioritizing regulatory safety and traditional finance integration.

sDAI (Sky/Maker): The original yield-bearing stablecoin, still functional alongside USDS with 4-8% yields through the Dynamic Savings Rate. Best for users already in the Maker ecosystem.

The Risks That Keep Me Up at Night​

Every yield-bearing stablecoin carries risks beyond what their marketing materials suggest.

Smart Contract Risk: Every yield mechanism involves complex smart contracts that could contain undiscovered vulnerabilities. The more sophisticated the strategy, the larger the attack surface.

Regulatory Risk: The GENIUS Act loophole may close. International regulators may follow the U.S. lead. Protocols may be forced to restructure or cease operations entirely.

Systemic Risk: If multiple yield-bearing stablecoins face redemption pressure simultaneously—during a market crash, regulatory crackdown, or confidence crisis—the resulting liquidations could cascade across DeFi.

Yield Sustainability: High yields attract capital until competition compresses returns. What happens to USDe's TVL when yields drop to 3% and stay there?

Where This Goes Next​

The yield-bearing stablecoin category has grown from novelty to $11 billion in assets remarkably quickly. Several trends will shape its evolution.

Institutional Entry: As Sky's Obex allocation demonstrates, protocols are positioning for institutional capital. This will likely drive more conservative, Treasury-backed products rather than derivatives-based high yields.

Regulatory Arbitrage: Expect continued geographic fragmentation, with higher-yield products serving non-U.S. markets while compliant versions target regulated institutions.

Competition Compression: As more protocols enter the yield-bearing space, yields will compress toward traditional money market rates plus a DeFi risk premium. The 20%+ yields of early 2024 are unlikely to return sustainably.

Infrastructure Integration: Yield-bearing stablecoins will increasingly become the default settlement layer for DeFi, replacing traditional stablecoins in lending protocols, DEX pairs, and collateral systems.

The Bottom Line​

Yield-bearing stablecoins represent a genuine innovation in how digital dollars work. Instead of idle capital, stablecoin holdings can now earn returns that range from Treasury-rate equivalents to double-digit yields.

But these yields come from somewhere. Ethena's returns come from derivatives funding rates that can reverse. Sky's yields come from lending activity that carries credit risk. Frax's yields come from Treasuries, but require trusting the protocol's banking relationships.

The GENIUS Act's yield prohibition reflects regulators' understanding that yield-bearing stablecoins compete directly with bank deposits. Whether current loopholes survive through 2027 implementation remains uncertain.

For users, the calculus is straightforward: higher yields mean higher risks. sUSDe's 15%+ returns during bull markets require accepting exchange counterparty risk and funding rate volatility. sUSDS's 4.5% offers more stability but less upside. Treasury-backed options like sFRAX provide government-backed yield but minimal premium over traditional finance.

The yield stablecoin wars have just begun. With $310 billion in stablecoin capital up for grabs, protocols that find the right balance of yield, risk, and regulatory compliance will capture enormous value. Those that miscalculate will join the crypto graveyard.

Choose your risks accordingly.

---

This article is for educational purposes only and should not be considered financial advice. Yield-bearing stablecoins carry risks including but not limited to smart contract vulnerabilities, regulatory changes, and collateral devaluation.

China presents the world's most paradoxical blockchain landscape: a nation that has banned cryptocurrency while simultaneously investing $54.5 billion annually in blockchain infrastructure, processed $2.38 trillion in digital yuan transactions, and deployed over 2,000 enterprise blockchain applications. For builders trying to navigate this environment, the difference between success and legal jeopardy often comes down to understanding precisely where the lines are drawn.

As of 2025, China's regulatory framework has crystallized into a distinctive model—one that aggressively suppresses decentralized crypto while actively promoting state-controlled blockchain infrastructure. This guide breaks down exactly what's permitted, what's prohibited, and where the gray areas create both opportunity and risk for Web3 developers and enterprises.

---

The Hard Bans: What's Absolutely Prohibited​

In 2025, China reaffirmed and strengthened its comprehensive ban on cryptocurrency. There's no ambiguity here—the prohibitions are explicit and enforced.

Cryptocurrency Trading and Ownership​

All cryptocurrency transactions, exchanges, and ICOs are banned. Financial institutions are prohibited from offering any crypto-related services. The People's Bank of China (PBoC) has made clear that this includes newer instruments like algorithmic stablecoins.

The crypto ban decree became effective from June 1, 2025, introducing:

• Suspension of all crypto transactions
• Asset seizure measures for violators
• Enhanced enforcement mechanisms
• Significant financial penalties

Stablecoins Under the Ban​

In November 2025, the PBoC explicitly clarified that stablecoins—once perceived as a potential gray area—are equally forbidden. This closed a loophole that some had hoped might allow compliant stablecoin operations within mainland China.

Mining Operations​

Cryptocurrency mining remains completely prohibited. China's 2021 mining ban has been consistently enforced, with operations forced either underground or offshore.

Foreign Platform Access​

Platforms like Binance, Coinbase, and other international exchanges are prohibited in mainland China. While some users attempt to access these via VPNs, doing so is illegal and can result in fines and further legal consequences.

Banking and Financial Services​

New 2025 regulations require banks to actively monitor and report suspicious crypto transactions. When risky crypto activity is identified, banks must:

• Uncover the user's identity
• Assess past financial behaviors
• Implement financial restrictions on the account

---

What's Explicitly Permitted: Enterprise Blockchain and the Digital Yuan​

China's approach isn't anti-blockchain—it's anti-decentralization. The government has made massive investments in controlled blockchain infrastructure.

Enterprise and Private Blockchain​

Enterprise blockchain applications are explicitly permitted within the CAC (Cyberspace Administration of China) filing regime and cybersecurity laws. Private chains see more deployment than public chains in both public and private sectors because they allow centralized management of business operations and risk control.

Permitted use cases include:

• Supply chain management and provenance tracking
• Healthcare data management
• Identity verification systems
• Logistics and trade finance
• Judicial evidence storage and authentication

The Chinese government has invested heavily in private and consortium blockchain applications across the public sector. Judicial blockchain systems in Beijing, Hangzhou, Guangzhou, and other cities now support digital evidence storage, contract execution automation, and smart court management.

The Blockchain Service Network (BSN)​

China's Blockchain Service Network represents the country's most ambitious blockchain initiative. Established in 2018 and launched in 2020 by the State Information Center under the National Development and Reform Commission, China Mobile, China UnionPay, and other partners, BSN has become one of the world's largest enterprise blockchain ecosystems.

Key BSN statistics:

• Over 2,000 blockchain applications deployed across enterprises and government organizations
• Nodes established in 20+ countries
• Resource costs reduced 20-33% compared to conventional blockchain cloud services
• Interoperability across different blockchain frameworks

In 2025, Chinese officials announced a roadmap for national blockchain infrastructure targeting approximately 400 billion yuan ($54.5 billion) in annual investments over the next five years. BSN sits at the center of this strategy, providing the backbone for smart cities, trade ecosystems, and digital identity systems.

The Digital Yuan (e-CNY)​

China's central bank digital currency represents the permitted alternative to private cryptocurrency. The numbers are substantial:

2025 Statistics:

• $2.38 trillion in cumulative transaction value (16.7 trillion yuan)
• 3.48 billion transactions processed
• 225 million+ personal digital wallets
• Pilot program covering 17 provinces

The digital yuan's evolution continues. Starting January 1, 2026, commercial banks will begin paying interest on digital yuan holdings—marking a transition from "digital cash" to "digital deposit currency."

However, adoption challenges persist. The e-CNY faces stiff competition from entrenched mobile payment platforms like WeChat Pay and Alipay, which dominate China's cashless transaction landscape.

---

The Gray Areas: Where Opportunity Meets Risk​

Between the clear prohibitions and explicit permissions lies significant gray territory—areas where regulations remain ambiguous or enforcement is inconsistent.

Digital Collectibles (NFTs with Chinese Characteristics)​

NFTs exist in a regulatory gray area in China. They're not banned, but they can't be bought with crypto and can't be used as speculative investments. The solution has been "digital collectibles"—a uniquely Chinese NFT model.

Key differences from global NFTs:

• Labeled as "digital collectibles," never "tokens"
• Operated on private blockchains, not public chains
• No secondary trading or resale permitted
• Real-identity verification required
• Payment in yuan only, never cryptocurrency

Despite official restrictions, the digital collectibles market has exploded. By early July 2022, approximately 700 digital collectibles platforms operated in China—up from around 100 just five months earlier.

For brands and enterprises, the guardrails are:

1. Use legally registered Chinese NFT platforms
2. Describe items as "digital collectibles," never "tokens" or "currency"
3. Never allow or encourage trading or speculation
4. Never imply value appreciation
5. Comply with real-identity verification requirements

The Ministry of Industry and Information Technology has indicated that digital collectibles represent a business model to be encouraged "in line with the country's conditions"—though comprehensive regulations haven't yet been released.

Underground and VPN-Based Activity​

A vibrant underground market exists. Collectors and enthusiasts trade through peer-to-peer networks, private forums, and encrypted messaging apps. Some Chinese users employ VPNs and pseudonymous wallets to participate in global NFT and crypto markets.

This activity operates in a legal gray area. Participants take on significant risk, including potential detection through enhanced banking surveillance and the possibility of financial restrictions or penalties.

Hong Kong as a Regulatory Arbitrage Opportunity​

Hong Kong's Special Administrative Region status creates a unique opportunity. While mainland China prohibits crypto, Hong Kong has established a regulated framework through the Hong Kong Monetary Authority (HKMA) and Securities and Futures Commission (SFC).

In August 2025, Hong Kong implemented the Stablecoin Ordinance, establishing a licensing regime for stablecoin issuers. This creates interesting possibilities for enterprises that can structure operations to leverage Hong Kong's more permissive environment while maintaining compliant operations in the mainland.

---

Filing Requirements and Compliance​

For enterprises operating permissible blockchain applications in China, compliance requires understanding the registration framework.

CAC Filing Requirements​

The Blockchain Provisions require service providers to file a recordal with the Cyberspace Administration of China within ten working days from the commencement of blockchain services. Importantly, this is a filing requirement, not a permit requirement—blockchain services don't require special operating permits from regulators.

What Must Be Filed​

Blockchain service providers must register:

• Basic company information
• Service description and scope
• Technical architecture details
• Data handling procedures
• Security measures

Ongoing Compliance​

Beyond initial filing, enterprises must maintain:

• Compliance with cybersecurity laws
• User real-identity verification
• Transaction record keeping
• Cooperation with regulatory inquiries

---

Potential Policy Evolution​

While 2025 has seen enforcement strengthen rather than relax, some signals suggest future policy evolution is possible.

In July 2025, the Shanghai State-owned Assets Supervision and Administration Commission indicated that the rapid evolution of digital assets could result in softening of China's strict position on crypto. This is notable as an official acknowledgment that the current framework may need adjustment.

However, any policy changes would likely maintain the fundamental distinction between:

• Prohibited: Decentralized, permissionless cryptocurrency
• Permitted: State-controlled or enterprise blockchain with proper oversight

---

Strategic Recommendations for Builders​

For developers and enterprises looking to operate in China's blockchain ecosystem, here are the key strategic considerations:

Do:​

• Focus on enterprise blockchain applications with clear business utility
• Use BSN infrastructure for cost-effective, compliant deployment
• Structure digital collectibles projects within established guidelines
• Maintain comprehensive compliance documentation
• Consider Hong Kong structures for crypto-adjacent activities

Don't:​

• Attempt cryptocurrency trading or exchange operations
• Issue tokens or facilitate token trading
• Build on public, permissionless blockchains for mainland users
• Encourage speculation or secondary trading in digital assets
• Assume gray areas will remain unenforced

Consider:​

• The regulatory arbitrage opportunity between mainland China and Hong Kong
• BSN's international expansion for projects targeting multiple markets
• Digital yuan integration for payment-related applications
• Joint ventures with established Chinese blockchain enterprises

---

Conclusion: Navigating Controlled Innovation​

China's blockchain landscape represents a unique experiment: aggressive promotion of controlled blockchain infrastructure alongside complete suppression of decentralized alternatives. For builders, this creates a challenging but navigable environment.

The key is understanding that China isn't anti-blockchain—it's anti-decentralization. Enterprise applications, digital yuan integration, and compliant digital collectibles represent legitimate opportunities. Public chains, cryptocurrency, and DeFi remain firmly off-limits.

With $54.5 billion in planned annual blockchain investment and 2,000+ enterprise applications already deployed, China's controlled blockchain ecosystem will remain a significant global force. Success requires accepting the framework's constraints while maximizing the substantial opportunities it does permit.

The builders who thrive will be those who master the distinction between what China bans and what it actively encourages—and who structure their projects accordingly.

---

References​

• Is Crypto Legal in China? Regulations & Compliance in 2025 - Lightspark
• Crypto Regulations in China Statistics 2025 - CoinLaw
• Crypto in China: A 2025 Guide - Arkham
• NFT Without Crypto: China's Policy on Digital Collectibles - De Gruyter
• Introduction to NFT-related Legal Issues in Mainland China - Lexology
• China's BSN Blockchain: Everything You Need to Know - 101 Blockchains
• China's Blockchain Playbook - CSIS
• China's Digital Yuan Processes $2 Trillion - Ledger Insights
• China Advances Digital Yuan With Major Overhaul - Crowdfund Insider
• China Tightens Grip: New Regulations to Curb Risky Crypto Trades - IFC Review