Shenzhen government warns of new wave of stablecoins scams - Coinfea

The Shenzhen government has warned the public of the rise of a new wave of stablecoins scams in China. The growing adoption of stablecoins has necessitated the rise of more issuers, with some generating fraudulent assets with no backing. Stablecoins have been known to inspire confidence due to their price tracking of the United States dollar and other currencies.

ContentsShenzhen warns users to be carefulStablecoin supply reaches its peakThe Shenzhen government, however, warned against abuses of the stablecoin concept. Multiple new projects are advertising the alleged security of stablecoins while engaging in fraudulent forms of financing. The local Chinese authorities monitored newly created stablecoin projects, which are receiving growing attention.

They have discovered illegal institutions claiming to use financial innovation and stablecoins as gimmicks to play on the lack of real understanding of crypto. This allows the projects to extract fiat assets in exchange for tokens with no provable backing. Some of these projects aid gaming, Ponzi schemes, and money laundering. The newly created stablecoins go beyond the scams related to existing stablecoins like USDT.

Shenzhen warns users to be careful

The Shenzhen government has warned users to increase their vigilance, avoiding offers to deposit their funds into unregistered institutions. Shenzhen authorities have also asked users to report any unregistered institutions aiming to raise funds to issue stablecoins. The recent crypto fraud is unrelated to entirely fake investments used in phishing scams. In the case of illegal fundraising, the investors have no resort to compensation or attempts to retrieve funds.

Risky stablecoins are few, compared to asset-backed USDT and USDC. However, some are still in circulation, with most of them posing the risk of depending. For new, unverified projects with little connection to DeFi, the stablecoins may be a scheme, with no way to access funds. While USDT and USDC can be tracked and frozen, newly minted stablecoins for small-scale projects remain difficult to trace, and most are created without an option to freeze or control funds. Small projects also pose risks of rug pulls or flawed smart contracts.

Stablecoin supply reaches its peak

Meanwhile, regulations for stablecoins in the US and euro have affected the supply of stablecoins positively, with USDC and USDT reaching near-record supply. USDT on TRON also increased, offering wider access for international traders. Currently, USDT and USDC are also among the busiest smart contracts on Ethereum, showing heightened stablecoin activity. Some of that activity is related to scams, but most of the use cases involve exchange trading and DEX swaps. Based on Artemis data, stablecoins have a supply of $249.8B.

In 2025, algorithmic stablecoins have become a niche, due to the increased risk of depending on exploits. Currently, this asset class boasts over $750 million in locked value, down by 50% since 2024. The value of crypto-backed stablecoins has also increased to $11.3B, up from $8.7 billion in 2024. The favorable regulations for fiat-backed assets led to supply expansion, with over $116.9B locked in fiat-backed stablecoins or those secured by US bonds. Some crypto-backed stablecoins are still used in DeFi, though mostly are linked to highly liquid protocols. After the crash of Terra (LUNA), stablecoin issuers turned more conservative, growing the stablecoin supply more gradually.