By Tan Shu
Edited by Colin Wu
In recent days, USDT has traded at a premium against the Chinese yuan (CNY) on over-the-counter (OTC) platforms of many exchanges. For example, on April 4, USDT reached 6.79 CNY on Huobi OTC, while the official USD/CNY exchange rate was 6.56, reflecting a 3% premium. Does this indicate an influx of new capital entering the crypto market?
Why USDT Maintains Stability as a Stablecoin
Acting as a bridge between fiat and cryptocurrencies, USDT operates in two primary markets:
- Crypto-to-USDT markets (centralized exchanges and DeFi platforms)
- USDT-to-USD markets (Tether's official redemption, bulk OTC traders, and regulated exchanges with USDT/USD trading pairs)
While crypto/USDT rates are market-driven, Tether must maintain a 1:1 peg for USDT/USD to preserve its stablecoin function. Tether's official redemption requires:
- Minimum $100,000
- Fees: $1,000 or 0.1% of the amount (whichever is higher)
Notably, Tether's [terms of service] state:
"Tether reserves the right to delay USD redemption if reserve assets face liquidity issues, and may compensate users with securities or other holdings."
Tether doesn't hold USD equivalent to its USDT supply but maintains parity through market-making on three key exchanges:
- Bitfinex ($70M daily volume)
- Kraken ($40M)
- FTX ($30M)
With $1.5B daily liquidity across these platforms for its $40B+ reserves, Tether easily sustains the peg.
Why USDT/CNY Premiums Emerge
Unlike USD markets, CNY/USDT trades only through decentralized OTC platforms where Tether can't directly regulate pricing. Premiums arise from:
- OTC supply-demand imbalance (sellers can't meet buyer demand)
- Crypto market shifts (investors converting volatile assets to stablecoins)
Historical example: During March 12, 2020 ("Black Thursday"), panic selling drove USDT/CNY premiums to 7.8.
Why Arbitrage Doesn't Eliminate Premiums
Despite 3% premiums creating theoretical arbitrage opportunities (buy USDT with USD → sell for CNY → convert back to USD), two barriers prevent this:
- China's forex controls (annual $50K/person limit and transfer restrictions)
- Black money risks (OTC sellers may receive illicit funds, risking frozen bank accounts)
The current premium coincides with BTC's drop from $60K, suggesting it stems more from crypto-to-stablecoin conversions than new CNY investors. Notable examples include:
- A DeFi whale borrowing massive USDT to stake $1B+ in FEI protocol
- Filecoin's mainstream popularity attracting new entrants
OTC traders also report:
- Increased newcomer activity (especially around Filecoin)
- Tighter anti-money laundering enforcement affecting traditional OTC channels
FAQ: Understanding USDT Premiums
Q: Is USDT's premium a reliable indicator of new market investment?
A: Not necessarily. While it can signal growing demand, premiums often reflect internal crypto market shifts rather than fresh fiat inflows.
Q: How does Tether maintain USDT's USD peg during market volatility?
A: Through active market-making on major exchanges like Bitfinex and Kraken, using its substantial reserves to balance supply.
Q: Why don't large institutions arbitrage USDT/CNY premiums?
A: Regulatory complexities and fund provenance risks outweigh potential profits for most institutional players.
👉 Discover how major exchanges manage stablecoin liquidity
👉 Explore DeFi strategies used by top crypto miners
Disclaimer: This content adheres to risk disclosure guidelines from China's Banking Regulatory Commission regarding virtual asset investments. All reported information is for educational purposes only.
Key SEO Keywords:
1. USDT premium
2. Stablecoin arbitrage
3. OTC crypto trading
4. Tether redemption
5. USD/CNY exchange
6. DeFi liquidity
7. Filecoin demand