Millions in cryptocurrencies cross the border between Russia and China daily. There, Tether is the King
Chinese importers in Russia are buying up to 30 million dollars a day (USDT) at over-the-counter commercial counters in Moscow.
They use cryptocurrency to send large sums to their country of origin, which has strict capital controls.
Previously, traders used bitcoin for this, but when the market collapsed in 2018, they changed the anchor to tether, which is designed to maintain parity with the US dollar.
Despite long-standing questions about the USDT guarantee, in this market “nobody cares if tether is backed up or not,” says a trader from Moscow.
The sound of cash counting machines does not stop “Vrrrrrrr”.
Cash counting machines hummed gently in an office with floor-to-ceiling windows overlooking Moscow landmarks.
“Do you hear that sound?” Asked the head of an over-the-counter cryptocurrency trading table (OTC), let’s call him “Oleg,” who requested that his real name and company be hidden. “You can listen to it 24/7 hours a week here.”
The business is fast thanks to the constant flow of Chinese merchants who come daily with large bags of cash. Oleg said his over-the-counter desk sells approximately $ 3 million in cryptography every day. Most often go to China. But what is perhaps more surprising is what it is with cryptography.
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 token linked to the dollar known as tether, or USDT.
Tether’s best-known application allows cryptocurrency merchants to move money between exchanges quickly to take advantage of arbitration opportunities. But according to several OTC traders in Moscow, it has at least one real-world use case, such as the remittance service for local Chinese importers.
The total USDT volume purchased by Chinese companies can reach $ 10 million to $ 30 million daily, these operators said.
“They accumulate a lot of cash in Moscow and need tether to transfer it to China,” said Maya Shakhnazarova, director of OTC operations at Huobi Russia, the Moscow office that serves customers of the Huobi Global stock exchange.
It is a simple process.
“A customer comes with cash, we record the price in the exchanges, when we agree on a price, we make a deal,” Shakhnazarova told CoinDesk. “The customer delivers cash and a wallet address, the seller sends USDT to the wallet.”
Why tether? It has the usual advantages of cryptography, with no limits on how much money can be sent or where, without the volatility that makes most currencies unfeasible to move millions across the border daily.
Despite long-standing questions about the alleged USDT dollar support, exacerbated by the New York State Attorney General’s (NYAG) court case against the issuing company Tether, stablecoin is generally traded around $ 1.
Tether purchases for rubles often take place in offices such as Huobi in the steel and glass skyscraper district of the city of Moscow.
“There are many OTCs here in the city of Moscow, lots of offices in each building, and the volumes for all of them can reach several dozen million dollars per day. Everything is paid in cash, “Shakhnazarova said.
Tether’s killer app (Tether’s killer app)
Chinese gray market importers used to rely on Bitcoin before the 2018 bear market, another OTC distributor, Roman Dobrynin, told CoinDesk. As the price steadily increased, merchants and intermediaries who helped them buy cryptocurrencies could earn some extra money along the way.
But since early 2018, expecting your bitcoin to be worth the same or more at the end of the transfer became too risky.
“As the price dropped, tether became much more convenient to use,” Dobrynin said. “China depends entirely on the USDT, they trust it a lot and it’s also very liquid.” His own clients are mostly Chinese, and they usually find him by word of mouth, connecting through Telegram.
To buy or sell USDT for Tether’s own dollars, a merchant must be verified through the process of getting to know the company’s customer (KYC). However, since the token runs on public blockchain networks (bitcoin, ethereum and tron), anyone can receive or send it, and secondary transactions are not restricted.
Tether did not respond to requests for comments at the time of publication.
Back in China, traders can easily exchange USDT for fiat, despite the fact that the People’s Bank of China banned the Fiat to crypto spot trade in September 2017, forcing exchanges to leave the country and limit trade to crypto-to-crypto pairs.
Chinese merchants who need to liquidate crypto assets in Chinese yuan can still turn to an OTC market maker, such as those registered on exchanges such as Huobi and OKEx, to interact with buyers and send them crypto after receiving a bank transfer through from a bank, AliPay or WeChat Pay.
Tether critics have questioned for a long time if the stablecoin was fully backed 1: 1 with dollars, as the company insisted for a long time. The NYAG case revealed that Tether had lent a large portion of its capital reserves to Bitfinex, an exchange with the administration and overlapping owners, leaving the currency only 74 percent guaranteed by cash and equivalents.
None of this seems to disturb Moscow merchants or their Chinese customers.
“Nobody cares if tether is supported or not,” says Konstantin Plavnik, chief operating officer of the Moscow-based cryptocurrency exchange Xena. Tether’s confidence in solvency depends on long-term habit and convenience: this market needs tether, so it is reliable.
OTC operators also point out that the USDT’s daily volume exceeds its circulating supply several times, indicating that people turn the token several times during the day. For example, according to CoinMarketCap, on July 29, the 24-hour USDT volume was recorded at $ 17.5 billion, while the total supply was around $ 4 billion.
The response time is fast, so for merchants who use the token for remittances, whether it is worth it or not, it only matters within one day. Large lots of USDT are transferred to China overnight and then exchanged for yuan, crypto entrepreneurs in Moscow told CoinDesk.
“The USDT will continue to be supported by the power of habit and the confidence of its users,” said Vladislav Bulochnikov, product manager of the crypto wallet application provider Chatex. “Even if he loses half of his support, he will still be out there.”
Bordering capital controls
Taking a step back, the Chinese government maintains strict capital controls, limiting the amount of foreign currency that anyone can buy or sell to $ 50,000 a year. People may request an additional fee, but even so the amount of currency they can buy and sell will be limited. In this situation, some Chinese have chosen to use cryptography to move money across the border, Bloomberg reported in 2017.
The fact that Chinese merchants who bring cheap products to Moscow’s shopping centers use cryptography to move money was officially recognized by Russian authorities last year.
Several large shopping centers in the city represent about $ 9.5 billion of unregulated cash flow monthly, and most of the merchants are from China, said Yuri Polupanov, head of financial monitoring and currency control at the Bank of Russia, during an event organized by Thomson Reuters in Moscow in April 2018.
These shopping centers, located inside department stores on the outskirts of Moscow, house multiple retail outlets, which mainly sell clothes, usually at a low price and in cash. They are buying Meccas for people who can’t afford to spend a lot on their closets and even avoid mass market chain stores.
“We see that most of the revenue is converted into cryptocurrencies, which is not reported in any way at this time,” Polupanov said at the Thomson Reuters event, according to the RBK news agency. “We see simultaneous transfers of that cryptocurrency by email to the homeland of those merchants and producers, and the next exchange of it for the local currency.”
According to a March 2019 report in the Russian newspaper Novaya Gazeta, cash would be received in places like a hotel called “Druzhba” (“Friendship” in Russian), located next to the shopping center called “Moscow”. Then this cash would be exchanged for crypto and sent to Hong Kong.
Wholesale offices in Druzhba could be between $ 10 and $ 12 million a day, Novaya Gazeta sources estimated.
Operations ceased for a short time after the police raided the hotel, along with the shopping centers mentioned by the Bank of Russia, in March this year.
Small cryptographic desks still work in those malls, the OTC merchant Dobrynin believes, although they may not provide the volumes that merchants need.
External traders are often afraid to go to those areas to make deals since things can get dangerous there, he said, then explained:
“The staff working there can sell someone 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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