Controversial stablecoin Tether is launching a new stablecoin dubbed 'CNHT' pegged to the offshore Chinese yuan.
Though this is not the first effort to create a crypto yuan, it is the first project likely to meet with success. BitCNY launched in 2018 on the Bitshares blockchain, and stablecoin QCash is pegged to the yuan on the Qtum blockchain, but neither has gained significant traction.
As an ERC-20 token on Ethereum, Tether’s offering will be the first yuan stablecoin on a major blockchain, and the first created by a well-known company.
"USD is losing the world"
Tether claims the motivation behind the new currency is diversification — reducing reliance on the U.S. dollar for its stablecoin business.
By choosing to create a yuan stablecoin, Tether is capitalizing on rising demand from China for digital assets amidst the trade war.
As a recent Diar study found, China’s appetite for USD Tether ‘dwarfs global demand‘, with the country responsible for a whopping 60 percent of all on-chain Tether transaction value.
Analysts are divided over whether this demand stems from Chinese citizens fleeing to Bitcoin as a safe-haven, or from commercial traders using Tether to sidestep strict capital controls.
Zhao Dong, OTC trader and founder of the peer-to-peer crypto lending business RenrenBit, will be one of the first to support trading and deposits for $CNHT. He told Brave New Coin that Chinese investors have no need for a safe-haven, and that Tether’s digital yuan is likely to be used for commercial trading.
"I think the Chinese will embrace $CNHT because it’s pegged to CNY so it is more convenient to use," says Zhao. "For people who are doing business with cost in CNY, it’s much better to use CNY than USD. USD is losing the world!"
Chinese importers in Moscow are thought to be using vast amounts of USD Tether to circumvent the 50,000 yuan transfer limit imposed by Chinese regulators on cross-border trades.
According to a report from Anna Baydakova, these traders relied on Bitcoin before 2018 but switched to Tether as the bear market set in. The importers are thought to be purchasing $30 million a day in Tether to smuggle funds over the border between Russia and China.
The more widely accepted explanation for Chinese demand for Tether, however, is that the ongoing trade war is prompting investors to ditch the yuan in favor of Bitcoin.
Analysts have noted an increased inverse correlation between Bitcoin and the yuan, suggesting that traders are buying up Bitcoin as the yuan falls.
This was explored in a recent report from Grayscale Investments, which supports the idea that cryptocurrencies like Bitcoin are becoming a safe haven asset. From Trump’s first announcement of tariff hikes in May, through to August 7th, Bitcoin is found to have generated a cumulative return of 104.8 percent, compared to an average of -0.5 percent from a selection of world currencies and stock market indices.
A systematic risk
As a more familiar stepping stone for Chinese investors to buy Bitcoin, Tether’s digital yuan could contribute to Bitcoin’s growing inverse correlation with the currency.
Some, however, suggest the stablecoin could have a political impact — damaging the capacity of the People’s Bank of China to exercise control over the digital yuan, which is set for release in November.
Chinese crypto investor and market commentator Dovey Wan reprimanded Tether for daring to touch China’s currency, linking to a thread on Chinese social media site Weibo where concerned crypto fans have arranged a boycott of the new stablecoin.
"The boycott of Tether’s $CNHT by local Chinese crypto OG has already started," tweeted Dovey. "This one is by Jun DU, former co-founder of Huobi, owner of the biggest Chinese crypto media JINSE and many others. His reasoning is that “It will bring systematic risk to local Chinese crypto ppl and companies.”
Trader Zhao Dong takes a different view. He says that Chinese regulators might see the potential of Tether’s offering to boost the circulation of the offshore yuan, and ultimately reinforce the strength of the Chinese currency against the U.S. dollar:
"Tether Yuan is not a threat to the PBoC. Actually, $CNHT will help the yuan to fight against USD."