An Investigation into the USDT Gray Market Behind "All In": Drug Trafficking, Online Gambling, and Money Laundering
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An Investigation into the USDT Gray Market Behind "All In": Drug Trafficking, Online Gambling, and Money Laundering
This article takes you back to DeepFlow's 2020 in-depth investigation, diving into the hidden corners of USDT.
Navigating Web3 tides with focused insights
Recently, the anti-fraud promotional film "No More Bets," set against the backdrop of northern Myanmar, was released and sparked interest in KTC mentioned in the movie. It also drew attention to the connection between Crypto and illicit activities—an issue that is far from new. As early as years ago, "USDT money muling" had already become a key target for law enforcement crackdowns.
This article revisits DeepTide TechFlow's in-depth investigative report from 2020, exploring the hidden corners of USDT.
Cryptocurrencies like USDT are becoming a “green channel” for collecting drug proceeds.
"Compared with WeChat or Alipay transfers, cryptocurrency transactions leave no verifiable information trail. Both buyer and seller stay safe," wrote a person involved in drug-related activities on a self-hosted blog site.
Cryptocurrency—a great experiment in financial history—originated in 2009 when an account named "Satoshi Nakamoto" published a paper titled *Bitcoin: A Peer-to-Peer Electronic Cash System*. Designed with decentralization and hard currency ideals at its core, it also planted a time bomb: due to its anonymity, it has increasingly become criminals' preferred tool, with USDT (Tether) being the most popular.
Beyond drug trading, USDT is also used in online gambling, money laundering, and capital flight—forming part of the underground economy.
DeepTide TechFlow interviewed and investigated participants in the crypto black market to reveal the dark side of USDT.
Buying Marijuana with USDT
"Compared with WeChat or Alipay transfers, cryptocurrency flows do not leave fully traceable records. Both parties remain secure," wrote Zhou Xiao (pseudonym) on his personal blog.
Zhou Xiao explained that because Bitcoin is involved, customers who buy drugs through him don’t need to worry. Buying Bitcoin on exchanges requires real-name verification, but this only proves you’ve purchased Bitcoin (as an investment). Where the Bitcoin goes afterward, and why, remains unknown—"unless you speak up, nobody knows."
"You can say you’re investing in Bitcoin because its price surged this year, then transferred it to another wallet under your control. I wrote down the password for that other wallet on paper—but lost it. I’m still looking for it these days," he added.
Zhou Xiao runs an online drug trading platform, mainly helping domestic users purchase marijuana, LSD, and other new psychoactive substances.
There are many people like Zhou Xiao using cryptocurrencies to trade drugs and "risk their lives for profit."
According to JusticeNet, a couple in Changchun used a Bitcoin address to receive and transfer drug money.
Wife Liu provided her Bitcoin account to her husband Ma. Ma used the account to collect drug proceeds and cashed them out into Liu’s bank card, moving over 100,000 yuan in total.
Prosecutors determined that Liu, knowing full well that Ma was selling drugs, still provided her Bitcoin account to receive funds and assisted in transferring the proceeds via her bank card—meeting the criteria for money laundering.
On January 20 this year, the court adopted the prosecution's sentencing recommendation: Ma was sentenced to three years and two months in prison for drug trafficking; Liu received six months for money laundering.
Zhou Xiao remains at large because his Bitcoin addresses are difficult to trace. He said his Bitcoin addresses are generated offline in bulk using elliptic curve encryption algorithms—randomly creating addresses and private keys without limit.
Zhou Xiao has used three cryptocurrencies for transactions: Bitcoin, USDT, and E-RMB, a token he issued himself.
Initially, he used Bitcoin. But during a bear market when BTC prices dropped, sellers demanded stable-value transactions, so he switched to the stablecoin USDT.
USDT is a cryptocurrency launched by Tether Ltd., pegged one-to-one to the U.S. dollar. For every USDT issued, there should be one U.S. dollar held in reserve by the company.
Recently, he plans to launch an electronic RMB called E-RMB. He claims it offers enhanced security and privacy, maintains a stable value pegged 1:1 to the Chinese yuan, and will only be available to existing users.
People like Zhou Xiao—who deeply understand and skillfully use cryptocurrencies—are becoming more common in the gray economy. Operating on the fringes of legality, they "risk their lives for profit" under the cover of crypto anonymity.
The Gray World of Cryptocurrency
"I have 900,000 USDT in my account," said Ai Ba (pseudonym), who operates a physical casino in Mong La, Myanmar. He told us he needs to convert cash into foreign exchange or USDT daily.
Chainalysis report data shows that from July 2019 to June 2020, over $50 billion worth of cryptocurrency flowed from East Asian addresses to overseas destinations, with more than $18 billion in USDT.
In the underground economy, cryptocurrencies serve three main purposes: drug trafficking, online gambling, and capital flight. This forms a secretive gray supply chain, filled with diverse and mixed actors.
For cross-border remittances, one Zhihu user described their method back in 2016: buying Bitcoin on a domestic exchange, transferring it to Bitfinex, and withdrawing after completing identity verification—submitting ID, passport, and proof of address. The platform charges a 0.1% fee (minimum $20). This completes the Bitcoin-based international money transfer.
An insider told DeepTide TechFlow this method works in practice. They personally tested sending funds from a Chinese address to a U.S. exchange, converted to USD, and deposited into a U.S. bank account—but noted, "this is just an exception."
If such operations were once limited to individual trial-and-error, today, with the rise of digital currencies, entire industries now offer crypto-based cross-border remittance services.
"We handle USD and AUD," said Ji Nan (pseudonym), offering a service to receive USDT and deliver fiat currency (cash or wire transfer). All you need to do is "tell us your receiving bank details—whether personal or corporate account, which bank, registered region—and funds arrive within one business day." For individual accounts, payments are labeled as loans or debts; for corporate accounts, as service fees.
Ji Nan explained that compared to traditional bank wire transfers—which take weeks and charge up to 5% fees—USDT transfers have near-zero fees and instant settlement.
"Minimum 5,000 USDT, no upper limit. For single transactions over 1 million USDT, just notify me in advance," Ji Nan said. Clients typically use this for U.S. stock trading, property purchases, or immigration.
Compared to the relatively straightforward cross-border remittance above, professional crypto money-muling groups operate in even more covert and larger-scale ways.
The term "money muling" originally referred to performance testing of computers or phones, but in payments, it has taken on a new meaning.
Previously, online gambling platforms bought large numbers of bank cards to collect payments. But this was costly—each card costing hundreds or thousands of yuan. Once blocked, those funds were lost.
After 2018, money muling models emerged. Many money muling platforms appeared, drastically reducing money laundering costs through crowdsourcing. These platforms advertise: "Just provide a QR code, earn money from home."
Money mulers deposit a bond (e.g., 10,000 yuan) on the platform and upload their WeChat or Alipay QR codes. When gamblers make payments through integrated systems, funds go to the muler. After reaching 10,000 yuan, the round ends. The platform pays the muler a commission and forwards the 10,000-yuan bond to the gambling platform.
"Like a Didi for moving money—Didi transports people, we transport cash," said a money muler. In this process, the gambling platform doesn’t directly touch the funds—mulers become tools for money laundering.
USDT money muling is a newer model using digital currencies. Traditional muling moves RMB; USDT muling moves USDT.
As the muler explained, the biggest advantage of USDT muling is decentralized trading: "Transactions occur directly between clients and our drivers (on-ramp/off-ramp agents), with no centralized fund pool, effectively preventing mass freezing. With USDT acting as a buffer, all transactions are untraceable. Our transaction volume is massive and highly dispersed."
"We provide deposit and withdrawal services for gambling platforms," said a QQ-based money muler. Using USDT, "you earn commissions on principal—settled per transaction. Earn 150–200 yuan per 10,000 yuan principal, paid directly to your bank card."
According to DeepTide TechFlow, such muling gangs promote themselves on platforms like QQ groups, Baidu Tieba, and Xianyu, then discuss details via secure messaging apps like Feishu (BatChat), Telegram, or PaperPlane, buy crypto on exchanges, and send coins to muling platforms—the most commonly used being USDT.
"There are people doing USDT muling, exchanging USDT for RMB. But those cases are rare—over 90% are scam schemes or Ponzi traps," Ai Ba said. Even face-to-face deals can end with someone suddenly disappearing.
Justice may be slow, but it never fails. A sweeping crackdown on cryptocurrency-based money laundering is underway.
The Crackdown Begins
"We can't be as reckless as before," Ai Ba said. With tighter scrutiny lately, he no longer accepts USDT business, instead using cash-to-foreign-exchange at a rate of 100:105.
On September 24, at the 9th China Payment Clearing Forum in Beijing, Liao Jinrong, Director of the Ministry of Public Security's International Cooperation Bureau, pointed out that over one trillion yuan in gambling-related funds flow out of China annually, specifically highlighting the use of cryptocurrencies to move gambling proceeds.
"In recent cases, we found some gambling gangs using virtual currencies to collect and transfer funds—even conducting online gambling disguised as 'virtual currency investments' in parts of Myanmar. These new digital currency channels are unfreezeable, anonymous, and hard to trace, posing major challenges to our law enforcement efforts."
Since the beginning of this year, nationwide anti-money-laundering and "Card-Cutting" campaigns have intensified.
On October 10, the State Council's inter-ministerial task force on combating telecom and internet fraud launched the "Card-Cutting" operation nationwide, targeting illegal production and trafficking of phone and bank cards.
Cryptocurrencies are undoubtedly a key focus. Some OTC crypto traders have been affected, with frozen accounts or investigations.
Under China's criminal law standards for money laundering prosecution, anyone who "provides a funding account" for money laundering can be criminally charged, facing up to five to ten years in prison and a fine of 5% to 20% of the laundered amount.
On June 8 this year, Huizhou police dismantled a criminal gang operating a fourth-party payment platform using USDT. They arrested 76 suspects, shut down four online payment studios, and dismantled two online gambling rings.
This case marks the first nationally solved instance of using USDT to provide payment services for illegal activities. Preliminary investigations show the platform operated for nearly 15 months, providing settlement services for 120 overseas gambling websites and 70 investment fraud platforms, involving 120 million yuan.
DeepTide TechFlow found that USDT, valued for its stability and anonymity, is increasingly favored by criminals. Whether for drug dealing, online gambling, or cross-border transfers, USDT is consistently the currency of choice.
Is USDT the Culprit?
Contrary to popular belief, the most popular cryptocurrency among Chinese users isn’t Bitcoin—it’s USDT.
According to Chainalysis, USDT surpassed Bitcoin in June this year to become the most popular cryptocurrency in East Asia—with China accounting for the largest share. The report states: "Tether has become the de facto fiat substitute for Chinese crypto users and the primary gateway to Bitcoin and other mainstream cryptocurrencies."
Currently, USDT’s total market cap exceeds $19.1 billion—up from around $100 million in 2017. In just three years, its market value has grown 191-fold.
Where are these rapidly issued USDT tokens being used?
As early as July 2019, Coindesk reported USDT being used in Russian cross-border trade: "20% of sales are in Bitcoin, 80% in USDT," said a Russian OTC trader. "Chinese companies alone buy between $10 million and $30 million worth of USDT daily."
In fact, USDT has become the most widely used "cross-over" cryptocurrency, closely tied to the gray economy. Crimes involving USDT are escalating. According to China Procuratorial Network, there have already been 85 criminal cases linked to USDT this year—compared to just 5 before 2020.
Regulators worldwide are noticing this trend, and legislation is catching up.
In September, the European Union formally proposed a regulatory framework for crypto assets and stablecoins, aiming to bring all crypto assets not covered by existing financial laws under supervision.
Recently, the UK Treasury announced it is drafting regulations for private stablecoins and studying the feasibility of central bank digital currencies as cash alternatives.
Back in China, Article 22 of the draft revision of the *People's Bank of China Law*, released on October 23, 2020, states: "No entity or individual shall manufacture or issue token coupons or digital tokens to replace the RMB in circulation."
As discussed above, USDT has already replaced RMB in areas like cross-border remittances and money laundering, effectively serving as a de facto fiat substitute for Chinese crypto users.
Will USDT collapse? When? That question looms over every crypto user.
To some tech enthusiasts, technology is neutral—only misused by bad actors. But the growing number of crypto-related crimes reminds us that technology cannot entirely absolve itself of responsibility for human evil.
"The genie is out of the bottle." Ted Rogers, CEO of Bitcoin wallet company Xapo, used this phrase to describe the BCH fork war. From the *Arabian Nights* tale of Aladdin’s lamp, it means once unleashed, the genie causes irreversible harm. Today, this saying still applies to USDT and other cryptocurrencies.
"Bitcoin was born with a mission of de-leveraging and hard currency. USDT fuels high leverage in today’s exchanges. In theory, wider adoption of a currency is positive. But if its primary uses are crime and speculation, shouldn’t we re-examine the original intent behind cryptocurrencies?" commented Pan Chao, head of MakerDAO China.
(Names Zhou Xiao, Ai Ba, and Ji Nan are pseudonyms per interviewee requests.)
*TechFlow reminds investors to beware of speculative risks. Views expressed in this article do not constitute investment advice.
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