A year after China banned local fiat on-ramps for crypto exchanges, Chinese traders continue to drive the market forward by using the dollar-pegged stablecoin tether (USDT).
“Crypto trading businesses are restricted from accessing banking services in China, but they are thriving nonetheless,” Dragonfly Capital Partners co-founder Alexander Pack told CoinDesk.
Traders generally work around such banking restrictions by using stablecoins. According to CoinMarketCap, USDT activity reached an all-time high this month with a global market cap exceeding $4 billion. Tether is reportedly used in between 40-80 percent of all transactions on the exchanges Huobi and Binance, the latter of which now offers loans based on USDT collateral.
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But since this asset is favored among over-the-counter (OTC) traders, official exchange volumes hardly paint a complete picture.
Blockchain data from CoinMetrics tallying a full year of transactions detected an annual peak in activity on Aug. 7, with 78,100 active wallets for USDT and nearly 21,300 for the ethereum-based counterpart USDTe. In fact, according to data site ETH Gas Station, Tether paid nearly $261,000 in fees to ethereum mines just to run this secondary version of the stablecoin. (Another Tether-issued stablecoin is on the way, this time pegged to the Chinese yuan.)
All things considered, USDT brokers have carved out a lucrative niche in 2019, especially brokers that provide fiat liquidity.
“Tether has truly good liquidity in China,” a Chinese investor speaking on the condition of anonymity told CoinDesk. “One of the primary use-cases is a fiat on- and off-ramp for crypto trading. I did also see some people using tether for legit business use-cases like cross-border trading.”
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On the other hand, two different Asian OTC traders, who requested anonymity to protect their businesses, told CoinDesk a significant portion of their traction comes from Chinese clients using USDT to move assets beyond their homeland’s strict capital controls.
“This has always been a significant part of OTC flows in crypto,” one Hong Kong-based trader said. For example, his desk conducted $45 million worth of trades on Aug. 6, with UDST representing more than half the volume.
Chinese bulls
Experts believe this surge in USDT usage may be driven by enthusiasm for a potential bull market return, rather than any changes in capital flight patterns.
“Tether is the easiest way to hold a relatively stable volume of value at an exchange that doesn’t accept dollars,” the U.S.-based trader said. “It’s much more about that [USDT] network effect than any technology, infrastructure or other advantage.”