China's Crypto Ban Fails to Stop $176 Billion P2P Economy

Stablecoin payments surge in China despite crypto ban

China's underground crypto economy has grown to at least $176 billion, with most activity now happening directly between personal wallets instead of through exchanges.

Chainalysis estimates the country generated $176 billion in crypto activity over the 12 months through June 2026. Of that, 59.1% flowed through domestic peer-to-peer transfers — a share three and a half times higher than in the previous period. This is unusual because most major crypto markets rely on exchanges as the main entry and exit point for users.

Stablecoins — cryptocurrencies designed to maintain a steady value, typically pegged to the US dollar — dominate this local activity. Chainalysis said domestic stablecoin payment activity began accelerating around March 2025 and expanded for 13 consecutive months.

Small transactions drive growth

New stablecoin activity grew from roughly $240 million per month in March 2025 to almost $5 billion about a year later. The growth was concentrated in transaction sizes consistent with individuals and smaller businesses, not just large institutional transfers.

• Stablecoin transfers below $100 jumped 996%
• Transfers between $100 and $1,000 rose 1,057%
• Transfers between $1,000 and $10,000 climbed 1,321%

Is the social-credit system driving the shift?

Chainalysis linked the timing to tighter financial monitoring in China. The country expanded aspects of its social-credit system into finance and online activity in March 2025. The firm suggested people whose access to conventional financial services has been restricted could turn to crypto, while others may use stablecoins to settle transactions outside monitored banking or e-commerce platforms.

However, Chainalysis described this as a working hypothesis rather than confirmed evidence of causation. Blockchain data can show when and how assets move, but cannot establish why an individual chose one payment method over another.

Stablecoins behaving like circulating money

The way stablecoins move through China-attributed wallets suggests users are treating them as transactional liquidity rather than long-term holdings. Chainalysis calculated annual turnover of self-custodied stablecoin holdings in China at 33.2 times, more than triple the global benchmark of 9.3 times. Japan recorded turnover of 9.9 times, Hong Kong 6.1, South Korea 5.1, and Taiwan 3.5.

China-attributed wallets held an average of about $3.1 billion in stablecoins during the period but transferred $104.1 billion across 18.1 million transactions. The same pool of tokens was repeatedly returned to circulation rather than sitting idle.

Why this matters for regulators

High turnover is consistent with stablecoins functioning as working capital or settlement assets, which could emerge as tokens develop into a domestic payment rail. This peer-to-peer structure sets China apart from neighboring markets, where most crypto economies depend heavily on regulated exchanges and centralized services.

China's restrictions on exchanges can limit formal market access, but self-custodied dollar-pegged tokens can still circulate through decentralized networks and private transfers. For crypto service providers, China represents a large potential source of demand that remains difficult to serve directly because of regulatory restrictions, so growth may continue through offshore platforms, over-the-counter networks, and self-custody rather than conventional consumer-facing businesses.

What remains unclear

It is not yet clear whether the acceleration in stablecoin P2P activity will persist as Chinese authorities expand oversight of digital payments and financial activity. The social-credit system connection remains a hypothesis, not confirmed causation.

Sources

• CryptoSlate

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