Chinese authorities have discovered an illicit underground banking network valued at $1.9 billion, involving the use of the widely-used stablecoin Tether (USDT).

Operating in Chengdu, the network facilitated the exchange of foreign currencies using Tether. Police in the city disclosed details of the operations, announcing the arrest of 193 suspects across 26 provinces.

The underground banking activities, which commenced in January 2021, primarily facilitated the smuggling of medicine, cosmetics, and investment assets overseas. Two operations in Fujian and Hunan were dismantled, with authorities freezing $20 million linked to the illicit USDT operations.

Despite China's strict prohibition on crypto-related activities, traders persist in bypassing the ban, utilizing cryptocurrencies in various ways. A report by Kyros Ventures revealed that Chinese traders rank among the largest holders of stablecoins globally, with 33.3% holding multiple stablecoins, second only to Vietnam's 58.6%.

While China has banned cryptocurrency usage and exchanges, as well as Bitcoin mining operations, the local population has found ways to evade these restrictions. Following the ban on Bitcoin mining, Chinese miners rose to second place in the global hash rate contribution within a year. Similarly, decentralized exchanges gained popularity among Chinese traders after centralized exchanges were banned.

In response to the ban, Chinese traders increasingly turned to decentralized finance protocols, while some resorted to using virtual private networks to defy the restrictions.