Why are Chinese investors no longer welcoming dollar-backed stablecoins?

For years, cryptocurrency investors in China have viewed USDT and other dollar-pegged stablecoins as a “safe haven” amid the turbulent waves of the market. However, dramatic shifts in monetary policy are forcing them to reconsider: what happens when stablecoins can no longer maintain their value against the local currency?

Over the past six months, the offshore yuan has appreciated significantly, rising from 7.4 to 7.06 against the US dollar, reaching its highest point in a year. While this is a positive signal for China’s economy, it presents a challenging reality for stablecoin holders: their dollar-denominated assets are quietly losing value when converted back to yuan.

The Perfect Storm Against Dollar-Denominated Assets

What seems like a simple calculation is causing headaches for many investors. If a Chinese investor converted 100,000 yuan to USDT in April at an exchange rate of 7.4, by now, exchanging it back at a rate of 7.06, they would only receive about 95,400 yuan—meaning a loss of 4.6% in value without having invested in any volatile crypto asset.

This isn’t just a temporary phenomenon. The US dollar index has dropped nearly 10% this year, as weak employment data and aggressive Fed interest rate cuts have fueled capital outflows from carry trades. Simultaneously, China’s stock market has seen strong growth—the Shanghai Composite Index surpassed 4,000 points—attracting foreign capital and further strengthening the yuan.

Additionally, China’s yuan-denominated trade volume has more than doubled from January to July. Large corporations have ramped up hedging activities through financial contracts, driving real demand for the yuan far beyond speculative factors.

According to research by Goldman Sachs, every 1% appreciation of the yuan leads to a 3% rise in China’s stock market, creating a mutually reinforcing loop that could push the currency even higher.

USDT: From Safe Haven to Risk Asset

These developments mean dollar-pegged stablecoins are no longer a reliable hedging tool for crypto investors in China. The combination of a weakening dollar and a strengthening yuan has significantly reduced the purchasing power of USDT in the domestic market.

Tightening regulations add further challenges. In May, the People’s Bank of China and 13 other ministries officially designated stablecoins as objects of scrutiny for anti-money laundering and foreign exchange control efforts. Recent statements emphasize that stablecoins lack legal status and are prone to misuse for illegal activities, signaling the risk of increased enforcement measures.

“The People’s Bank of China has just issued a new warning about stablecoins, asserting that these are virtual currencies without legal circulation status under the cryptocurrency ban. Regulators believe stablecoins can be used for money laundering, fundraising fraud, and illegal cross-border capital transfers.”

On peer-to-peer exchanges, the USDT/yuan rate has dropped below 7, reflecting pressure from both market forces and regulatory risks. Transaction fees and spreads have also increased significantly.

Chinese Investors Shift Towards Tokenized Real-World Assets

Faced with the erosion of savings and a tightening regulatory environment, Chinese investors are seeking new strategies. Instead of holding USDT, many are turning to tokenized real-world assets on the blockchain, such as US stocks or dollar-denominated gold. These assets not only offer profit potential or price appreciation but can also help offset exchange rate losses and overcome legal barriers.

This trend aligns with the global strategy of institutional investors, who are tokenizing physical assets and bridging blockchain technology with traditional markets. For Chinese crypto investors, these options maintain exposure to the US dollar while diversifying portfolios beyond currency volatility.

The swift transformation of USDT from a “safe haven” to a risk asset marks a major turning point for both China’s crypto sector and the yuan. It’s safe to say that the era of viewing stablecoins as risk-free savings accounts has officially ended for investors in China.

Mr. Giao