Author: Liu Honglin

This is a meeting on the 28th, the importance of which far exceeds the news headline itself.

The entire "national-level regulatory team," including the Ministry of Public Security, the Cyberspace Administration, the Central Financial Office, the two high courts, the State Administration of Foreign Exchange, the China Securities Regulatory Commission, and the Financial Regulatory Bureau, is fully in place, indicating that the regulatory authorities believe the issue of virtual currencies has reached a stage where a unified stance and action are necessary.

But what is truly worth discussing is a key statement that emerged during the meeting — "Stablecoins are a form of virtual currency." This is the first time that the Chinese government has explicitly defined stablecoins in an official document and directly included them within the regulatory framework of "illegal financial activities related to virtual currencies."

All the ambiguity, speculation, and hope surrounding stablecoins over the past few years have disappeared starting today.

The industry has long believed that while China's regulatory stance on virtual currencies is clear, there has always been a "gap in expression" regarding whether stablecoins fall under this category. Many entrepreneurs interpreted this gap as "potential room for discussion," and thus repeatedly explored directions such as "cross-border payments," "supply chain financial settlements," "foreign trade agency payments," "on-chain RMB," and "blockchain pilots."

However, the emergence of this statement today is equivalent to the regulators stepping forward and drawing a solid line around that ambiguous boundary. Since stablecoins have been included in the category of virtual currencies, they automatically fall under all previous regulatory policies regarding virtual currencies, with no exceptions and no pilot programs.

The most common misconception in the industry is to infer regulatory logic from a technical perspective.

It is believed that as long as the technology is advanced, safety is improved, and underlying assets are transparent, there may be room for policy. But the logic of regulation this time is very straightforward: the real risks of stablecoins far outweigh their technological value.

The meeting's press release repeatedly emphasized three issues — money laundering, fraud, and cross-border capital flows. These three are the complete chain of all virtual currency-related cases over the past three years. Whether it is running points, online gambling, fraud funding chains, underground banks, or illegal currency exchange, stablecoins have become the core layer of settlement. They address the essential elements most needed for "fast, cross-border, and hard to trace" gray businesses, thus becoming the starting point of risk in the eyes of regulators.

As long as this risk chain is not resolved, discussing the commercial value of stablecoins is meaningless. The priority of regulation has always been "risk first, innovation second." Stablecoins, under current real conditions, cannot meet KYC, AML, and capital item regulatory requirements, which determines that there will be no policy window for them.

Many in the industry have placed the regulatory logic of mainland China alongside that of Hong Kong, Singapore, and the United States, believing that what is being done overseas will eventually be discussed in China; but this meeting has already provided the only correct judgment method: China will not discuss stablecoins using the "same path"; China's regulatory goal has never been to "make the market more efficient," but to "make risks more controllable."

Once this point is clearly defined, all so-called "gap-based innovations," "small-scale pilots," "regulatory sandboxes," and "on-chain RMB" lose their real foundation. The regulatory attitude is not "strict," but rather "directly terminate the possibility."

Many entrepreneurial teams have been asking the same questions over the past few years: Can we only focus on on-chain technology? Can we avoid reaching users and only do system development? Can an overseas entity be responsible for issuance while a domestic team handles technology? Can we explore cross-border financial pilots in free trade zones? From today onward, these questions no longer need explanation.

Because as long as stablecoins are defined as virtual currencies, they directly fall into the overarching framework of "activities related to virtual currencies are considered illegal financial activities." As long as any link in your business chain connects with mainland China — users, funds, servers, promotion, settlement, technical services, matchmaking, agency issuance — the risk level is the same, and there is no distinction between "technology companies are fine" or "only serving the B-side is legal." The legal nature of stablecoins no longer allows for such distinctions.

Today's signal is very clear: regulation has moved from "maintaining ambiguity" to "clear attitude." Ambiguity was once a management tool to some extent, but stablecoins are no longer suitable for continued ambiguity; they have become a "key element" in many cross-border crime chains. As long as the social risk of this matter far exceeds its economic value, regulators will not provide any experimental space.

For Chinese entrepreneurs, if they want to engage in stablecoins, there is only one path: the project must be a completely overseas project.

Overseas legal entities, overseas bank accounts, overseas audits, overseas users, overseas regulatory licenses, and the most crucial point: no services can be provided to Chinese users in any form, nor can Chinese funds be involved in the business chain. As long as any link falls back into mainland China, the project automatically falls into the classification of "illegal financial activities." This is a very clear red line.

You will see that Hong Kong, Singapore, the Middle East, and Europe are continuously launching stablecoin regulatory frameworks, and the regulatory goals in these regions are completely different: they hope to enhance the international competitiveness of local finance with stablecoins; while the goal of mainland China is to ensure capital project management capabilities and financial security.

Different goals naturally lead to different paths.

For mainland entrepreneurs, this classification is not a "complete ban," but rather a clear message: do not waste time on directions that cannot be realized; instead, focus your energy on overseas markets.

It signifies the end of the stablecoin fantasy in mainland China and means that the industry no longer needs to repeatedly explore "gray possibilities." For entrepreneurs, this is bad news because the direction has been closed off; but it is also good news because the judgment has become clear, and there is no need to continue wasting time on the wrong path.

Regulators have made their stance clear; the next judgment should come from the industry itself.

/ END.

*This article is an original piece by Shanghai Mankun Law Firm, representing the personal views of the author and does not constitute legal advice or consultation on specific matters. More Web3 practitioners are welcome to submit articles or reports. For reprints and legal consultations, please add customer service: MankunLawFirm.

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