On-the-ground investigation of stablecoins in Huaqiangbei: starting from 50,000 coins, there are gray areas.

Written by: Cao Yuan, 21st Century Economic Report

In today's foreign trade business, more and more merchants are paying attention to using stablecoins for cross-border payments.

Earlier, a reporter from the 21st Century Business Herald visited Yiwu, "the world's largest small commodity distribution center", to investigate the use of stablecoins by merchants. It was found that most merchants stated they had not heard of stablecoins and were not familiar with them; some merchants raised concerns about their compliance and costs; only a few merchants supported receiving payments in stablecoins.

In China's "Electronic First Street" Shenzhen Huaqiangbei, there is a vast electronic components trading market, which also attracts numerous suppliers and buyers from around the world.

Recently, reporters also visited five shopping malls in Huaqiangbei, Shenzhen, including SEG Electronics Market, SEG Communication Market, Modern Window Digital Plaza, Yuanwang Digital Mall, and Longsheng Accessories City, and conducted several visits to dozens of merchants in different malls; reporters also consulted over 20 Huaqiangbei merchants online to explore their use of stablecoin for transactions: only a few merchants indicated that they would use or try to use stablecoin for transactions, while most merchants expressed that they are still unfamiliar with stablecoin.

Stablecoins refer to cryptocurrencies that are pegged to the value of fiat currencies. Taking USDT, the largest stablecoin by market cap, as an example (commonly referred to as "U"), 1 USDT is pegged to 1 US dollar. This year, driven by legislative progress in the United States and Hong Kong, the stablecoin sector has seen a surge globally.

Shenzhen Huaqiangbei, China's "Electronic First Street" (Photo / Cao Yuan)

Some merchants expressed that they are "testing the waters".

During the visits by reporters from 21st Century Business Herald, some merchants in Huaqiangbei stated that they would use or try to use stablecoins for transactions. A merchant dealing in 3C electronic products said, "I know people around me who are using stablecoins for trading. I would consider using stablecoins for overseas payments, but I haven't completed any transactions yet."

In addition to offline visits, the reporter randomly consulted over 20 merchants in Huaqiangbei on online platforms, among which two stated that they could accept stablecoins. Another stablecoin exchange told the reporter online, "Some 'foreigners' will ask if they can pay with stablecoins, as it is convenient for payment."

Most of the merchants in Huaqiangbei interviewed stated that "they are not clear about what stablecoins are." Even though some merchants have heard of stablecoins, they believe it has no relation to their daily operations.

A merchant specializing in hair dryers said, "Currently, many foreigners still mainly use cash and Alipay for shopping. The largest overseas remittance I made recently was $30,000, which someone helped me transfer through Alipay."

Another CPU merchant said, "We only use fiat currency and have never used stablecoins." A merchant dealing in graphics cards asked the reporter, "Are stablecoins the same as Bitcoin? What use do they have for me?"

The reporter consulted relevant staff from two malls in Huaqiangbei, and the other party also stated, "As far as I remember, it seems that no merchants use stablecoins, I will look into it further."

Huaqiangbei SEG Plaza (Photo / Cao Yuan)

Even if some merchants intend to use stablecoins for payments, the next step of "cashing out" the received stablecoins remains a gray area, typically done through so-called "U merchants." "U merchants" refer to virtual currency acceptance merchants or OTC (over-the-counter) traders in the crypto circle. They primarily earn profit by providing exchange services between the stablecoin USDT (commonly referred to as "U") and fiat currency in the virtual currency trading market.

Investigative reporters found that different "U merchants" set various thresholds for "receiving U" transactions, primarily focusing on "large transactions." One "U merchant" directly told the reporters, "We don't deal with small amounts for 'receiving U', only large ones; we start at fifty thousand U, and the received coins can be in several K." (This means starting from fifty thousand stablecoins USDT, with cash payment). However, another "U merchant", upon learning that the reporter had a need to "cash out U", stated, "You can come directly for offline transactions."

In terms of exchange rates, taking USDT as an example, 1 USDT is pegged to 1 USD, so most "U merchants" will buy U at a rate slightly lower than the daily exchange rate, and some "U merchants" will charge a certain service fee. "Buying lower than the market price and selling higher than the market price." One "U merchant" simply explained his "U buying model" to the reporter. Another "U merchant" calculated, "I don't have a price list; it's all a uniform price. For example, if I buy 100 stablecoins worth 100 USD from you, I can give you 97 USD in cash for the exchange, and the service fee for each coin is 0.03 yuan (RMB)."

And who are the downstream "U merchants"? Who will "take over" the stablecoins they receive? The aforementioned "U merchants" told reporters, "We will also sell some on exchanges, and there are also some peers who want to buy."

Need to guard against compliance risks

Some merchants have noticed stablecoins and even use stablecoins for foreign trade?

Tianyang Technology, referred to as a "stablecoin concept stock," summarized in response to investor questions that, first, the arrival time is uncertain, which depends on the design of the counterparty bank link in SWIFT; second, the fees are opaque, also depending on the intermediary banks involved; third, the transaction status, although SWIFT has launched services to pay for querying transaction status, currently, the progress of funds is unknown to both the remitting and receiving parties.

Stablecoins have certain advantages in cross-border payment settlements. "The biggest difference between stablecoins and other virtual currencies is that they are pegged to fiat currency, which makes them relatively stable. As a result, their financial investment attributes are reduced, and their fund settlement attributes are highlighted," said a representative from a bank's transaction banking department. "Stablecoins bypass the traditional SWIFT banking system and enable peer-to-peer transactions on the blockchain network. However, they are currently illegal in mainland China."

However, it is important to note that using stablecoins for foreign trade settlement in the country faces compliance risks.

"Currently, using virtual currency for cross-border payments in China is definitely not feasible," emphasized Zeng Jie, a senior partner at Guangqiang Law Firm and director of the Defending and Research Center for Illegal Fundraising Cases, to reporters. Recently, relevant departments in Shenzhen and Beijing have also issued risk warnings: be cautious of illegal fundraising carried out under the guise of stablecoins and other names.

In addition, regarding the transaction of "receiving U and issuing U", Zeng Jie believes that this is actually a qualitative issue regarding virtual currency transactions themselves. If a citizen's personal virtual currency trading investment complies with public order and good customs, it is merely a personal investment transaction and not an activity related to conducting relevant business. The transaction itself is a trade of virtual goods, which is protected by law.

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