- Chinese importers in Russia are buying up to $30 million a day of tether (USDT) from Moscow’s over-the-counter trading desks.
- They use the cryptocurrency to send large sums back to their home country, which has strict capital controls.
Previously
the merchants used bitcoin for this, but when the market crashed in
2018 they switched to tether, which is designed to maintain parity with
the U.S. dollar.- Despite longstanding questions about USDT’s collateral, in this
market “nobody actually cares if tether is backed or not,” says one
Moscow trader.
Vrrrrrrrrrrrrr…..
The cash-counting machines were softly buzzing in an office with floor-to-ceiling windows overlooking Moscow’s landmarks.
“Hear that sound?” asked the head of an over-the-counter (OTC)
cryptocurrency trading desk — let’s call him ‘Oleg’ — who requested his
real name and company be withheld. “You can hear it 24/7 in here.”
Business is brisk thanks to a constant flow of Chinese merchants who
come in daily with heavy bags of cash. Oleg said his OTC desk sells
about $3 million worth of crypto every day. Most of it usually goes to
China. But what’s perhaps most surprising is which crypto.
Only 20 percent of Oleg’s sales are in bitcoin, the oldest
cryptocurrency with the largest market capitalization. The other 80
percent is in the dollar-pegged token known as tether, or USDT.
Tether’s best-known application is allowing crypto traders to move
money between exchanges quickly to take advantage of arbitrage
opportunities. But according to several Moscow OTC traders, it has at
least one real-world use case – as the go-to remittance service for
local Chinese importers.
The total volume of USDT purchased by Chinese businesses can reach $10 million to $30 million daily, these traders said.
“They accumulate a lot of cash in Moscow and need tether to transfer
it to China,” said Maya Shakhnazarova, head of OTC trading at Huobi
Russia, the Moscow office serving high-roller clients of Singapore-based
exchange Huobi Global.
It’s a simple process.
“A client comes with cash, we register the price at exchanges, when
we agree on a price, we make a deal,” Shakhnazarova told CoinDesk. “The
client hands over cash and a wallet address, the seller sends USDT to
the wallet.”
Why tether? It has the usual advantages of crypto – no limits on how
much money can be sent or where – without the volatility that makes most
coins infeasible for moving millions across the border daily.
Despite longstanding questions about USDT’s purported dollar backing, exacerbated by the New York State Attorney General (NYAG) court case against the issuing company Tether, the stablecoin usually trades around $1.
The tether-for-rubles purchases often take place in offices like
Huobi’s in the steel-and-glass skyscraper district of Moscow City.
“There are a lot of OTCs here in Moscow City, a bunch of offices in
every building, and the volumes for them all can reach several dozens of
millions of dollars a day. It’s all paid for in cash,” Shakhnazarova
said.
Tether’s killer app
Chinese grey-market importers
used to rely on bitcoin before the 2018 bear market, another OTC
dealer, Roman Dobrynin, told CoinDesk. As the price was ever-growing,
merchants and the intermediaries helping them buy crypto could make some
extra money along the way.
But since the beginning of 2018, hoping that your bitcoin will still
be worth the same or more at the end of the transfer became too risky.
“As the price was going down, tether became much more convenient to
use,” said Dobrynin. “China is totally reliant on USDT, they trust in it
a lot, plus it’s very liquid.” His own clients are mostly Chinese, and
they usually find him by word of mouth, connecting via Telegram.
To buy or sell USDT for dollars from Tether itself, a trader must be verified through the company’s know-your-customer (KYC) process.
However, since the token runs on top of public blockchain networks
(bitcoin, ethereum and tron), anyone can receive or send it, and
secondary trades are unrestricted.
Tether did not respond to requests for comment by press time.
Back in China, the merchants can exchange USDT for fiat easily, even
though the People’s Bank of China banned fiat-to-crypto spot trading in
September 2017, forcing the exchanges to move out of the country and
limiting trading to crypto-to-crypto pairs.
Chinese traders who need to liquidate crypto assets into Chinese yuan
can still go to an OTC market maker, such as those registered on
exchanges like Huobi and OKEx, to get matched with buyers and send them
crypto after receiving a wire transfer via a bank, AliPay or WeChat Pay.
Critics of Tether have long questioned whether the stablecoin was
fully backed 1:1 with dollars, as the company long insisted. The NYAG
case revealed that Tether had loaned a big chunk of its capital reserves
to Bitfinex, an exchange with overlapping management and owners,
leaving the coin only 74 percent collateralized by cash and equivalents.
None of this seems to faze the Moscow traders or their Chinese clients.
“Nobody actually cares if tether is backed or not,” says Konstantin
Plavnik, chief operating officer of Moscow-based crypto derivatives
exchange Xena. Confidence in Tether’s solvency relies on long-time habit
and convenience: this market needs tether, so tether is trusted.
OTC traders also point out that USDT’s daily volume exceeds its
supply in circulation several times over, which indicates that people
turn the token around multiple times during the day. For example,
according to CoinMarketCap, on July 29, the 24-hour volume of USDT was
recorded at $17.5 billion, while the total supply was just around $4
billion.
The turnaround of tether is fast, so for the merchants using the
token for remittances, whether it’s worth something or not matters only
within one day. Large batches of USDT get transferred to China overnight
and then exchanged for yuan, crypto entrepreneurs in Moscow told
CoinDesk.
“USDT will stay propped by the power of habit and trust of its
users,” said Vladislav Bulochnikov, the head of product at crypto wallet
app provider Chatex. “Even if it loses half of its backing — it’ll
still be out there.”
Skirting capital controls
Stepping back, the Chinese government maintains strict capital controls, limiting the amount of foreign currency anyone can buy
or sell to $50,000 a year. People can apply for an additional quota,
but still the amount of currency they can buy and sell will be limited.
In this situation, some Chinese have opted to use crypto to move money
across the border, Bloomberg reported in 2017.
The fact that Chinese merchants bringing cheap goods to Moscow’s
shopping malls use crypto to move money around was all but officially
recognized by the Russian authorities last year.
Several large malls in the city account for around $9.5 billion of unregulated cash flow monthly,
and most of the merchants are from China, said Yuri Polupanov, the Bank
of Russia’s head of financial monitoring and currency control, during
an event hosted by Thomson Reuters in Moscow in April 2018.
These malls, located inside huge warehouses on the outskirts of
Moscow, host multiple retail stands, selling mostly clothing, usually
for cheap and for cash. They are shopping Meccas for people who can’t
afford to spend much on their wardrobes and avoid even mass-market chain
stores.
“We see most of the revenue turned into cryptocurrency, which is not
reported in any way at the moment,” Polupanov said at the Thomson
Reuters event, according to the RBK
news agency. “We see simultaneous transfers of that cryptocurrency via
email to the homeland of those merchants and producers, and the
following exchange of it for the local currency there.”
According to a March 2019 report
in the Russian newspaper Novaya Gazeta, cash would be received at
places like a hotel called “Druzhba” (“Friendship” in Russian), located
next to the shopping mall named “Moscow.” Then this cash would be
swapped for crypto and sent to Hong Kong.
The wholesale trade offices at Druzhba could be turning around $10
million to $12 million daily, Novaya Gazeta’s sources estimated.
The operations were ceased for a short time after police raided the
hotel, along with the malls mentioned by the Bank of Russia, in March of
this year.
Small crypto desks are still functioning at those malls, OTC trader
Dobrynin believes, though they likely don’t provide the volumes
merchants need.
Outside traders are often afraid to go to those areas to make deals as things can get dangerous there, he said, explaining:
“The personnel working there can sell somebody
information about how much money you have, and some armed people can
meet you on your way back. People go there only with armed bodyguards.”
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