Authorities in Chengdu City, China, have apprehended 193 individuals across 26 provinces in connection with an underground banking network, revealing illicit activities involving the popular Stablecoin Tether USDT. The crackdown exposed a 1.9 billion scheme facilitating the exchange of digital assets to circumvent stringent Chinese regulations. The illicit operation, which commenced in early 2021, aimed to smuggle goods or facilitate investments abroad.

Furthermore, law enforcement froze $20 million (149 million yuan) linked to the illegal operation and dismantled operations in two provinces, Fujian and Hunan. Tether's stability and relative anonymity enabled the suspects to conduct transactions discreetly, despite China's comprehensive ban on cryptocurrency operations, highlighting the ongoing struggle between the government and crypto enthusiasts seeking to evade regulations.

Despite China's crackdown on digital asset trading since 2017, when it imposed strict rules on ICOs, Chinese traders continue to hold stablecoins and conduct transactions overseas. According to a report by Kyros Ventures, China ranks second, behind Vietnam, in terms of stablecoin holdings, demonstrating the substantial demand for digital assets for business transactions and wealth preservation.

Chinese traders' ability to circumvent regulations dates back more than five years when China banned Bitcoin mining and other cryptocurrency activities. Despite the ban, China remained a significant contributor to the Bitcoin network's hash rate, indicating clandestine mining activities. Additionally, the ban on centralized exchanges prompted traders to shift to decentralized exchanges, complicating government oversight.

Moreover, traders utilized Virtual Private Networks (VPNs) to conceal their online activities from government surveillance. In contrast to China's stringent stance, Hong Kong recently approved Bitcoin ETFs, marking a significant departure from China's approach and potentially influencing the broader Asian region.

The Chinese government's ongoing efforts to enforce its ban underscore the challenges of regulating digital assets, amidst increasing adoption and demand. As adoption grows, the government may need to reconsider its strict stance on cryptocurrencies.