China's Crypto Crackdown: Flow Impact on Stablecoins and RWA

The regulatory flow shifted sharply on February 6, 2026, with a new notice from eight government agencies led by the People's Bank of China. The first major channel closed was the issuance of yuan-pegged offshore stablecoins, which are now banned without explicit approval. This move directly targets a potential source of onshore liquidity by restricting the creation of dollar-pegged alternatives that could have siphoned yuan demand.

The crackdown then expanded to real-world assets. The notice banned onshore RWA tokenization and related services, while also imposing strict supervision on offshore tokenization based on onshore rights. This dual approach removes a potential conduit for institutional capital to enter the crypto ecosystem from within China and tightly controls any cross-border activity. The rules require offshore subsidiaries and service providers to strengthen compliance, implement client suitability checks, and report or seek approval for any such activities.

The net effect is a clear redirection of capital flows. Two potential sources of onshore liquidity-offshore stablecoin issuance and onshore RWA tokenization-have been formally closed. This forces any remaining activity offshore, under stricter scrutiny, and consolidates regulatory control over yuan-linked digital assets. The immediate flow impact is a contraction of domestic crypto liquidity channels.

Digital Yuan vs. Private Stablecoins: The Liquidity Battle

The People's Bank of China is now offering a direct financial incentive to hold its digital currency. Starting January 1, commercial banks began paying interest on digital yuan wallets, a policy shift aimed at transitioning the e-CNY from simple "digital cash" to "digital deposit money." This move directly targets the core value proposition of private stablecoins: earning yield while holding digital cash.

The new interest policy is a strategic response to slow onshore adoption. Despite the digital yuan's advanced infrastructure and over 3.4 billion transactions processed, its uptake remains far behind private payment giants like WeChat Pay. By adding yield, the PBOC is attempting to make its product more competitive for storing value and facilitating payments, the very use cases that stablecoins dominate globally.

The recent regulatory crackdown removes the private stablecoin alternative entirely from the onshore market. With offshore issuance banned and onshore RWA tokenization shut down, the competitive landscape for yuan-linked digital assets is being consolidated. The PBOC's product now faces no domestic private competition, creating a clear path for the state-backed currency to capture onshore digital liquidity.

Catalysts and Risks: What to Watch for Flow Reversals

The first potential signal for a flow reversal is the possibility of exceptions for specific RWA tokenization projects. The notice explicitly states that exceptions may apply in specific cases if approved by authorities. Monitoring for any such approvals, particularly for pilot programs or state-backed initiatives, would indicate a controlled opening of the ban and a shift from blanket prohibition to selective, regulated participation.

The primary metric to watch is the adoption of the PBOC's new interest-bearing digital yuan. The central bank's policy shift aims to compete with private stablecoins by offering yield. The flow impact hinges on whether this incentive drives a measurable increase in digital yuan wallet balances and interest-bearing balances against the backdrop of the private stablecoin ban. A sustained uptake would validate the state's liquidity strategy; stagnation would highlight the challenge of replacing private yield.

The overarching risk is capital flight. If onshore yields remain low and the digital yuan fails to capture significant demand, the ban may accelerate yuan outflows via unregulated channels. The crackdown is designed to thwart private market activity that could impact the stability and control of their money supply, but it also removes a legal avenue for yuan to find yield abroad. This creates pressure for capital to seek returns elsewhere, potentially through offshore stablecoins or other illicit routes, undermining the very stability the rules aim to protect.