Shenzhen Warns Public of Rising Stablecoin Scams Amid China's Crackdown

Shenzhen authorities have issued a stern warning to the public about the rising number of scams involving stablecoins and digital assets. The city’s special task force targeting financial crime highlighted the increasing misuse of stablecoins in illegal fundraising, fraud, and pyramid schemes. This notice underscores China’s broader efforts to control financial innovation while cracking down on unsanctioned digital assets.

Unlicensed firms are selling stablecoin-based investment schemes under the guise of “digital assets” and “financial innovation.” These projects often promise high returns and low risk, despite operating with minimal regulatory oversight. The entities behind these schemes exploit public ignorance about stablecoins and decentralized finance (DeFi) to solicit funds. Many of these offers are used as conduits for illegal activities such as money laundering, gambling, and pyramid structures.

The announcement was made by the Office for Preventing and Combating Illegal Financial Activities, a local government arm working under national directives to mitigate systemic financial risk. The government stressed that any organization offering investment services involving stablecoins must be licensed by China’s financial regulators. Without that approval, the fundraising is illegal. According to the Regulations on Preventing and Handling Illegal Fundraising, individuals participating in such schemes do so at their own financial risk, and the state will not compensate losses resulting from unlawful investment in unregistered digital asset ventures.

The warning emphasizes that no entity—whether domestic or foreign—can promote, issue, or sell tokens, stablecoins, or digital investment products to the Chinese public without explicit authorization. Officials also highlighted how some operations are intentionally misleading, using language like “blockchain innovation” or “Web3 wealth opportunity” to give the appearance of legitimacy. In truth, they may lack any underlying value or functioning blockchain infrastructure.

China has maintained a strict regulatory stance on cryptocurrency for years. The country banned initial coin offerings (ICOs) in 2017, outlawed crypto trading platforms and mining in 2021, and continues to block foreign exchanges and wallet services from operating inside its borders. This latest action from Shenzhen fits into a national effort to prevent digital finance from evolving into a shadow banking system. With China’s central-bank digital currency (CBDC) e-CNY entering the scene, attitudes toward privately issued stablecoins are especially wary, since they could subvert monetary control.

The attention to stablecoins, rather than to more volatile cryptocurrencies like Bitcoin or Ethereum, also mirrors shifting trends in fraud. Many scams now use or are based on tokens that are pegged to fiat currencies, to appear to be more stable and trustworthy, which is particularly important for retail investors. In an effort to expand public involvement in financial surveillance, Shenzhen authorities encouraged citizens to report suspected illegal activity related to stablecoins or other digital assets. Complaints may be filed with the financial authorities either at the city-level or the district-level, with police. Informers of verified leads could be rewarded with money, although the specifics of such compensation were not articulated in the public notice.

This tactic is similar to those employed in China’s anti-corruption efforts, which frequently have citizens mobilized to aid the crackdowns. It also shows the government’s preventive focus, trying to catch fraud before it grows large enough to cause bigger financial damage. The Shenzhen speech comes as stablecoins are the subject of a global regulatory debate. Regulators in the U.S., EU, and various countries in Asia have been worried about the systemic risks posed by unregulated stablecoin issuance, the potential for shadow banking and liquidity crises, and cross-border capital movement outside traditional controls.

For crypto projects that have tried, or are trying, to build on a global basis, or offer yield-bearing stablecoin products, it is a living example of how implementation is no joke. Programs that still push investment products for the mainland market — by social media or with the help of third-party agents — risk being targeted for investigation, asset seizure or blacklisting. Indeed, there have already been numerous shutdowns and monitoring of Chinese language Telegram and WeChat crypto promotion groups.

The Shenzhen authorities’ underlying message is clear: Investor education and skepticism are crucial. A project that merely uses blockchain or DeFi vernacular is not necessarily safe or valid. Both USDT, USDC and algorithmic stablecoin like DAI have become the mainstream in global DeFi, but all of the above are illegal for investment solicitation in mainland China without special authorization. Investors, especially in Asia-Pacific countries with high levels of crypto adoption, are advised to check whether organizations are regulated, ask for disclosure, and shun guaranteed returns programs.