Why the Chinese Make Up the Bulk of Tether Trade Volumes

A new report from blockchain analysis firm Diar has revealed that Chinese cryptocurrency exchanges are responsible for 60% of all Tether (USDT) trade volumes globally. The figure equals a staggering over $10 billion in USDT trading in 2019 so far.

“2019 to date flows into exchanges catering primarily for Chinese traders beat the $7Bn of all the transactional value for 2017,” Diar explains.

This figure is almost double the total volumes recorded for on-chain Tether transactions in 2018, where China accounted for 39 percent of the total volumes traded on USDT.

What makes this figure shocking is the distance between the Chinese volumes and that of the U.S. According to the report, there’s dwindling demand for Tether in the U.S., as exchanges in the States account for $450 million in 2019 USDT volumes. The remaining 31 percent of traded USDT were attributed to global exchanges Binance and Bitfinex.

“US-based exchanges saw their share of the stablecoin demand/trading drop from 44 percent in 2017 to less than 10 percent in 2018.”

China’s love for Tether is no coincidence. If we have to speculate why Chinese traders are buying so much Tether, then we have to look towards the events of 2017, when the government began regulating the crypto sector. The Chinese government initially announced a blanket ban on local exchanges and on Initial Coin Offerings (ICOs) in China, which was then the largest crypto trading hub in the world. This ban later expanded to cover access to foreign crypto accounts, blockchain news websites and even crypto events in the country. These actions limited direct bitcoin trading and other crypto assets.

Chinese investors have had to make do with alternatives. By alternatives, enter Virtual Private Network (VPN) and Tether (USDT).

VPNs allow users to mask their location so they can visit sites they normally wouldn’t have been allowed to based on their region. In some countries, popular VPN services are used for entertainment. In China, VPN services are used for trading crypto along with Tether.

“[A]s long as a trading platform servers remain outside China, and transactions are conducted peer-to-peer and remain decentralized, it would be a huge challenge for the regulators to completely block access,” the South China Morning Post (SCMP) reported.

Chinese traders use a “client to client” scheme, where two individuals come together to exchange fiat for tether in the presence of a supervisor(in most cases is an exchange). If there’s no dispute, the buyer sends the fiat to the seller, who then forwards the USDT to the buyer. Once tether is received, the buyer can make purchases on any exchange of choice using VPNs.

At the moment, there are no plans to shut down VPNs in China, but it could happen later in the future.

As SCMP states:

“Chinese regulators definitely have the technical ability to shut down VPNs. […] However, traditionally, it takes numerous conversations with different stakeholders to reach a consensus on configuring a firewall, which lengthens the process.”