ABSTRACT
How are contracts enforced and criminal liability avoided in China’s extralegal stablecoin over-the-counter exchange market, given that legal protection is weak and anti-moneylaundering regulation strictly enforced? With formal fiat-to-stablecoin on-ramps prohibited, this market has faced pervasive market opportunism and heightened legal exposure since China’s 2020 regulatory crackdown. Drawing on 43 in-depth interviews and 536 court decisions, and using an extensive-form game-theoretic model, we examine how stablecoin dealers navigate these challenges. We find that dealers use four mechanisms-platform-based escrow, platform-based reputation systems, off-line transactions, and dealer networks-to enforce contracts. They also adopt a self-policing mechanism to screen out illicit funds, thereby avoiding involvement in money laundering. This article thus examines the evolving relationship between formal and informal institutions in extralegal markets subject to regulatory pressure and underscores the regulatory role of nonstate actors.
Lai, Ruoran and Lin, Wanlin and Ding, Li, Walking the Tightrope: Contract Enforcement and Self-policing under AML Regulation in China’s Stablecoin OTC Market (December 20, 2025).
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