US can’t solve stablecoin impasse, China can’t shut them down

America can’t solve its stablecoin strife, China can’t shut down stablecoins fast enough, Tether can’t shake its dodgy reputation, and Russia can’t keep using crypto to evade sanctions.

The Trump administration’s efforts to resolve the stablecoin ‘yield v rewards’ debate continue, albeit without tangible signs of progress. This fight between the crypto and banking sectors is considered one of the primary sticking points preventing advancement of the Senate Banking Committee’s digital asset market structure legislation (the CLARITY Act).

In short, crypto platforms like the Coinbase (NASDAQ: COIN) exchange want to offer their customers ‘rewards’ (aka interest) for holding stablecoins on their platforms. Banks want Congress to extend the GENIUS Act’s ban on stablecoin issuers offering ‘yield’ (aka interest) to token holders to include these third-party platforms.

Banks say a failure to extend the GENIUS ban will result in mass deposit flight and limit their ability to offer loans, with a particularly negative impact on smaller community banks. Crypto firms say these concerns are overblown and banks just don’t want the competition.

On February 2, White House crypto advisor Patrick Witt convened a meeting of stakeholders from both sides of this debate, which was praised as ‘productive’ but produced no real results beyond a willingness to keep talking. The banks’ representatives mainly came to listen, while crypto groups suggested that community banks should strike deals with crypto firms to either (a) custody the fiat assets backing stablecoins, or (b) issue their own stablecoins.

On February 10, the White House hosted a “smaller, more focused session” that resulted in similarly ‘productive’ praise but still no progress on reaching some grand bargain. However, the banks did come a little more prepared, offering a one-sheet detailing their ‘Yield and Interest Prohibition Principles.’

These principles largely align with the banks’ previous positions, although Crypto in America journo Eleanor Terrett suggested that the sheet’s reference to ‘any proposed exemptions’ to the prohibitions showed that banks were willing to offer some new wiggle room.

But Decrypt’s Sander Lutz suggested that the banks’ position is actually hardening, as the document says these unspecified exemptions “must be extremely limited in scope.” Moreover, the banks’ prohibitions include a stablecoin holder’s “use” of their tokens.

The most recent version of CLARITY would have permitted stablecoin holders to receive rewards based on their engagement in a broad range of ‘activities.’ This was an expansion of a workaround proposed by Banking Committee member Angela Alsobrooks (D-MD), who later said the expanded list of activities went far beyond what she originally envisioned.

And yet, this ‘activities’ language was insufficient to secure Coinbase’s support, leading Banking chair Tim Scott (R-SC) to cancel the scheduled CLARITY markup session at the last minute. Following this week’s meeting, Coinbase chief legal officer Paul Grewal (who was in attendance) tweeted the standard praise for Witt and the White House and expressed hope that “everybody will stay at the table to do what’s right.” Coinbase CEO Brian Armstrong offered similarly specific-free praise.

Other crypto operators, including RLUSD stablecoin issuer Ripple Labs, are said to be far more amenable to bending their positions to avoid breaking the market structure process. Ripple’s chief legal officer, Stuart Alderoty (also at Tuesday’s meeting), tweeted that “compromise is in the air” and urged both sides to “move now—while the window is still open,” alluding to the fact that Congress’s gnat-like attention span will soon turn to November’s midterm elections.

With consensus elusive, the White House’s desire to resume CLARITY’s forward progress by the end of February appears unlikely. That is, unless the administration’s top officials continue to lob thinly-veiled warnings at Coinbase, aka “a nihilist group in the industry who prefer no regulation to this very good regulation,” that their all-or-nothing stance is messing with Trump’s plans to make the U.S. the world’s crypto capital.

China says stop trying to make yuan-backed stablecoins happen

Trump has repeatedly stated that America must take the lead on digital assets because “if we don’t do crypto, then China’s going to.” But China’s version of ‘doing’ crypto appears to be focused on doing it serious harm.

On February 6, the People’s Bank of China (PBoC), the China Securities Regulatory Commission (CSRC), and half a dozen other government agencies issued a joint statement expressing in no uncertain terms that no individual or entity (foreign or domestic) is allowed to issue so-called ‘offshore yuan’-based stablecoins “without the approval of relative departments.”

For years, China has been developing its central bank digital currency (CBDC), the digital yuan, for use by mainland residents. Last year, Beijing appeared interested in developing an ‘offshore’ version of the digital yuan, allegedly to bolster the yuan’s international appeal to better compete with the U.S. dollar and the euro.

But the authorities almost immediately walked back this public perception, issuing unambiguous denunciations of stablecoins as ideal tools for “money laundering, fundraising fraud, and illegal cross-border fund transfers.” Several entities, including some of China’s largest tech platforms, swiftly curtailed their yuan-based stablecoin plans to avoid further annoying Beijing.

China’s warning comes as Hong Kong authorities prepare to issue their first HKD stablecoin licenses in March after the special administrative region’s stablecoin ordinance took effect last August. Eddie Yue, CEO of the Hong Kong Monetary Authority (HKMA), said last week that its review of 36 stablecoin issuer applications was nearing completion, but expectations are for only a “very small number” of permits to be approved in the initial batch.

The PBoC announcement also unveiled a new approach to the tokenization of real-world assets (RWA) that basically prohibits their use, going as far as to warn individuals/entities “providing related intermediary and information technology services” that they too could find themselves on trial.

The PBoC did leave the tokenization door slightly ajar, noting exceptions to the ban “for related business activities conducted based on specific financial infrastructure with the approval of the competent business authorities in accordance with laws and regulations.”

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Tether talks Turkey

The only stablecoin identified by name in China’s new policy paper was Tether, aka USDT, which dominates all fiat-pegged tokens with a market cap of $184 billion. Tether has long been on China’s radar due to USDT’s popularity with the ‘pig butchering’ scam compounds in Cambodia and other Southeast Asian countries that have enslaved so many Chinese nationals over the years.

With its new goal of establishing a (compliant) U.S. market presence, Tether has been trying to scrub its history of refusing to help victims of crypto crime. Starting a few years ago, Tether began acting on select law enforcement requests in a bid to show it’s now one of the good guys.

On January 30, Turkish media reported that local authorities had frozen ‘cryptocurrency holdings’ worth €460 million (US$546 million) following an illegal gambling investigation. The digital assets were frozen by “the international platform where the account is registered.”

A week later, Bloomberg quoted Tether CEO Paolo Ardoino saying Turkish authorities “came to us, they provided some information, we looked at the information and we acted in respect of the laws of the country. And that’s what we do when we work with the [U.S. Department of Justice], when we work with the FBI, you name it.”

A second betting-related freezing of $500 million worth of digital assets occurred just days after the first. This seizure was linked to Seref Yazici, owner of the Dubai-based Darkex exchange, which operates in Turkey without permission from local authorities. Ardoino has yet to specify whether Tether played any role in this seizure (although USDT is the designated trading pair of every token on Darkex).

But no matter how much Tether tries to clean up its act, criminals just keep dragging its name in the dirt. This week, Bloomberg did a deep dive on how “drug cartels are shifting their money laundering to crypto,” and you’ll be shocked—shocked!—to learn that USDT plays a major role.

The article quotes Nick Carlsen, a former FBI analyst now working at blockchain analysts TRM Labs, discussing U.S. authorities busting a (relatively) small-time crypto-for-cash broker in a suburban park in California. “You can go after the guys exchanging $300,000 a pop, but that’s not going to change anything. When you look at a Tether wallet that’s moving money for these big guys, you’re seeing billions.”

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Tether fails to convince investors of its value, future

Tether’s bid to clean up its act is also likely a bid to convince outside investors that the company is now a much safer bet than it once was. However, the company’s September 2025 announcement of a plan to raise as much as $20 billion from outside investors appears to have undergone significant shrinkage, suggesting investors still aren’t convinced Tether’s face turn is legit.

The Financial Times reported last week that Tether had scaled back its plans and was now looking to raise “as little as $5 billion after facing reluctance from investors.” These investors reportedly remain “apprehensive about regulatory risks surrounding Tether.” They also reportedly expressed skepticism at Tether’s self-valuation of $500 billion, which would rank it alongside top tech firms that make actual products.

Ardoino minimized the retreat, saying the original $20 billion figure was “not our goal. It’s our maximum we were ready to sell. If we were selling zero, we would be very happy as well.” Tether later issued a statement saying the FT report was based on “a misconception” of its plans, “amplified by unnecessary noise and speculation rather than by anything that has materially changed.”

Apart from Tether’s reputational issues, investors may have had cause to question the company’s finances. Last December, the S&P Global ratings agency gave Tether’s stability its weakest possible rating, citing the growing percentage of speculative assets in Tether’s attestations of the fiat reserves backing the $185 billion in issued USDT.

Additionally, Tether’s most recent attestation claimed a “net profit exceeding $10 billion in 2025.” But that was $3 billion below 2024’s reported profit and also only $30 million higher than the profit figure Tether reported over the first nine months of 2025.

Last week, Tether trotted out new Q425 figures to bolster its investor appeal, citing 534.5 million users (+35.2 million in Q4, the eighth consecutive quarter of +30 million user growth). Monthly active on-chain users (wallets that receive USDT at least once a month) averaged 24.8 million in Q4, another all-time high.

As of December 31, 2025, there were 139.1 million on-chain USDT holders (+14.7 million in Q4, Tether’s largest quarterly gain to date). Another “over 100 million” users are believed to hold USDT on centralized exchanges.

Tether claims the most significant slice of USDT (36%) is held on exchanges, while the next biggest slice (33%) is held in wallets by ‘savers’ (wallets that retain at least 2/3 of the USDT they receive), many of whom are likely based in third-world countries with unstable fiat currencies.

Unlike those thrifty savers, Tether definitely isn’t saving up its USDT for a rainy day. February isn’t half over, but Tether has been acquiring stakes in other companies at a furious pace this month.

This investment flurry includes a $100 million stake in Anchorage Digital, Tether’s partner on the new U.S.-facing USAT stablecoin; a $150 million stake in Gold.com that will see the precious metals platform integrate Tether’s gold-based XAUT token and possibly let customers buy gold with USDT; an unquantified investment in t-0 Network, a USDT-based institutional settlement platform; and a similarly unquantified investment in LayerZero Labs, the entity behind the omnichain version of USDT (USDT0).

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Russia’s A7A5 stablecoin facing Ukraine, EU sanctions

Notwithstanding Tether’s reputation as a key tool in evading Western economic sanctions, Russia has increasingly turned to a local solution, the ruble-backed A7A5 stablecoin. This hasn’t gone unnoticed by the rest of Europe, which is responding with measures to disrupt Russia’s new pseudo-cash cow.

Ukraine, which Russia invaded four years ago this month, announced two new rounds of sanctions this past weekend, including one round targeting 42 individuals and 35 entities linked to Russia’s financial channels. These targets include the Moscow-based firms A7 Technologies LLC and A7 Broker, plus A7 Kyrgyzstan (the country that’s home to A7A5’s nominal issuer Old Vector).

Ukraine claims that A7’s various elements are helping to fund the acquisition of international components that Russia requires to build the missiles that rain down on Ukraine’s cities. The rubles backing A7A5’s issued tokens are held at Promsvyazbank (PSB), a Russian state-owned bank that holds a 49% stake in A7 Technologies.

Last October, the European Union imposed sanctions on a number of A7A5-linked entities, including the Kyrgyzstan-based Grinex exchange, where the bulk of A7A5 trades occur. Grinex emerged from the ashes of Garantex, an exchange shut down in 2024 following an international law enforcement effort targeting money launderers and ransomware operators.

On February 10, the Financial Times reported that the European Commission (EC) was attempting a new tactic to prevent similar Garantex/Grinex phoenix-from-the-ashes revivals. An internal EC document reportedly states that “in order to ensure that sanctions achieve their intended effect [the EU] prohibits to engage with any crypto asset service provider, or to make use of any platform allowing the transfer and exchange of crypto assets that is established in Russia.”

The new tactic, which the EC hopes to include in its 20th Russia-focused sanctions package, has reportedly run into opposition from three EU member states (one of which is almost certainly Hungary, whose President Viktor Orban often takes Russia’s side against the EU).

The EC also wants to add 20 Russian banks to the new sanctions package, as well as prohibit any transactions using Russia’s CBDC, the digital ruble, which is being rolled out nationwide this year.

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