China’s Regulation 42 forces Tether to kill its CNHT stablecoin

Tether has never been in a better place than it is right now, at least when it comes to its position in the crypto industry in America.

It’s been the largest stablecoin for nearly a decade, numerous executives and equity holders are billionaires, Howard Lutnick (who used to purchase all of Tether’s t-notes) is now the financial whisperer to President Donald Trump, and it just launched a sister version of tether (USDT) that’s available for US customers to redeem.

In the US, things are looking good.

However, in China a completely different story is unfolding — and it looks bad.

Regulation 42 and the end of Yuan stablecoins

China released new regulatory banking guidance regarding virtual currencies and stablecoins known as Regulation 42 of 2026.

Only three cryptocurrencies are explicitly named in these new regulations: bitcoin (BTC), ether (ETH), and USDT. This suggests that they’re the most widely used and available cryptos in Mainland China.

Regulation 42 replaces 2021’s Regulation 237, placing stricter rules and harsher criminal sentences on issuers of real world tokenized assets and cryptocurrencies.

It states, “Without the approval of relevant departments in accordance with laws and regulations, no entity or individual, whether domestic or foreign, may issue stablecoins pegged to the Renminbi overseas.”

While there may be other companies that have issued stablecoins pegged to the yuan, by far the most prominent and important is Tether, which chose to create CNH₮, pegged to the price of offshore Renminbi, in 2019.

The Yuan-pegged stablecoin has rarely been used by traders, with only 20.5 million ever being put into circulation and a few dozen individuals choosing to interact with it.

Nevertheless, shortly after the rule change in China, Tether announced that it would issue no more CNH₮ and would give anyone holding the stablecoin one year to redeem what they have.

Tether announcement fails to mention Chinese regulations

Tether claims in its announcement that the reason for the discontinuation of CNH₮ is due to “low interest in the product, and limited sustained community demand relative to other supported assets.”

It added, “CNH₮’s usage levels don’t justify the continued operational support required to maintain it at the standards Tether applies across its products.”

Read more: The family affairs shaping Tether’s $180B empire

While true that there has been little-to-no interest in CNH₮, with the last major issuance occurring when Tether added support for it on the TRON blockchain in 2022, it failed to mention that if it continued to issue the stablecoin, it would be in direct violation of Chinese law and could face criminal prosecution, arrest, and likely years in prison if any executives or shareholders ever set foot in the Chinese mainland.

Bitfinex shareholder, Chinese OTC trader, and convicted criminal Zhao Dong, who was one of the early cheerleaders of the concept of CNH₮ before his arrest in 2020, is set to be released from Chinese prison between late 2026 and early 2027.

This just so happens to line up with the redemption period for CNH₮. Tether will allow no redemptions beyond February 20, 2027.

Read more: China wants a yuan stablecoin, but why?

Chandler Guo, another Chinese crypto trader, has publicly stated that Zhao “is getting out [of prison] by the end of 2025” in September of 2025, but there’s been no confirmation of his release, nor any activity on any of his social media accounts.

It could be that Bitfinex and Tether executives are looking to keep a shareholder appeased by allowing him to cash out whatever CNH₮ is still under his control once he’s released.

Questions about Tether and the US government

Although Tether has gotten the boot from China in regard to both issuing Yuan-pegged cryptocurrencies and the usage of its far more popular dollar-pegged stablecoin, the US government hasn’t bothered to investigate or attempt to hinder the stablecoin issuer for years.

A Department of Justice investigation was ongoing but has presumably died off with no action ever taken.

Meanwhile, having Howard Lutnick, who purchased US Treasuries for Tether when he was leading Cantor Fitzgerald, in charge of the Department of Commerce has all but ensured that Tether will never face any prosecution or proper audits.

China’s strict rules and regulations stand in stark contrast to the US, which has allowed Tether to issue over $180 billion worth of its stablecoin in a dollar denomination without any oversight whatsoever.

Protos reached out to Tether for comment and is yet to hear back. If Tether responds the article will be updated.

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