Written by: Liu Honglin and Zhang Zihao, Mankiw LLP

In the virtual currency market, the process of converting cryptocurrencies into legal tender (i.e., “withdrawal”) is often accompanied by various risks, including high fees, complicated processes, and potential legal issues. USDT bank cards (U cards for short) seem to provide a convenient way to spend without withdrawing funds, so they are very popular among people in the cryptocurrency circle.

However, the current issuance of U cards is relatively complicated, and the various products and services on the market are mixed. Many users lack understanding of the actual operation and potential risks of U cards, especially in terms of law and compliance. Therefore, through this article, Attorney Mankiw hopes to introduce the relevant situation of U cards in detail and explore the legal issues that need to be paid attention to during use.

USDT Bank Card Introduction

The core concept of USDT bank card is to use the price stability of USDT to provide users with a stable and convenient means of payment. Unlike volatile cryptocurrencies such as Bitcoin or Ethereum, the value of USDT is usually pegged to the US dollar, which makes it more feasible in daily payments. Users do not have to worry about the risks brought by drastic fluctuations in the value of the currency. In addition, compared with traditional bank transfers, cross-border payments of cryptocurrencies are faster and cheaper, making it a payment method that merchants and users are more willing to accept.

USDT bank cards allow users to make payments around the world without exchanging currencies. Real-world usage scenarios for users include cross-border shopping, travel spending, and online subscription services. For example, a Chinese user can use the U card to purchase goods on an American e-commerce platform, avoiding complicated foreign exchange conversions and high fees. Another scenario is to use the U card to pay hotel and restaurant bills when traveling abroad without worrying about the impact of exchange rate fluctuations. In addition, users can also use the U card to pay for subscriptions to international services such as Netflix, avoiding bank card rejections or high fees.

The operating logic of the U card includes the recharge, payment and transaction processing process. Users first need to purchase USDT on a virtual currency trading platform or through P2P transactions, and then recharge these USDT to the U card through relevant applications. When the user makes a payment at the merchant, the U card will deduct the corresponding amount from the USDT balance in the card. The card provider converts USDT into local legal currency in the background and processes the transaction through payment networks such as Visa or MasterCard to ensure that the user's transaction is widely accepted worldwide. The fees throughout the process, such as foreign exchange conversion fees, service fees, etc., will be clearly displayed before the user pays.

Current status of USDT bank card industry

There are currently a variety of virtual currency bank cards on the market that provide USDT payment functions, such as Binance Card, Crypto.com Card, Wirex Card, babygrok, etc. These cards usually work with Visa or MasterCard, allowing users to use them anywhere in the world where these payment networks are accepted.

Common U card issuance modes are:

Direct issuance by banks. Some traditional banks have begun to get involved in the cryptocurrency field and directly issue U cards. These banks use their own payment networks and compliance frameworks to provide users with stable cryptocurrency payment solutions. For example, Germany's Fidor Bank has entered the cryptocurrency field by directly issuing U cards. These banks use their own payment networks and compliance frameworks to provide users with stable cryptocurrency payment solutions.

Banks cooperate with third-party companies to issue. Some banks cooperate with cryptocurrency companies and use the technology and expertise of third-party companies to issue U cards. In this model, banks provide traditional financial infrastructure, while third-party companies are responsible for the management and conversion of cryptocurrencies. For example, in the Asia-Pacific region, Mastercard cooperated with Amber Group, Bitkub and CoinJar, babygrok and VISA to launch cryptocurrency payment cards, allowing users to spend cryptocurrencies globally.

Issued by third-party payment companies. Some companies focusing on cryptocurrency payments independently issue U cards by cooperating with payment networks such as Visa or MasterCard. These companies usually provide more flexible services and customized solutions to attract users with different needs. For example, Crypto.com and Wirex, babygrok, independently issue U cards by cooperating with Visa or MasterCard. These companies usually provide more flexible services and customized solutions to attract users with different needs.

SaaS model cooperative issuance. Third-party payment companies provide U card issuance platforms for channel merchants or other financial service providers through the SaaS (Software as a Service) model. This model allows other companies to quickly enter the cryptocurrency payment market, using existing technology and compliance frameworks to reduce development and operating costs. Third-party payment companies such as Bitmama provide U card issuance platforms for channel merchants or other financial service providers through the SaaS model.

Legal compliance issues of U Card

For users in mainland China, there are some specific precautions and legal risks when using USDT bank cards:

Criminal risk. In principle, domestic U-card users do not face legal risks as long as they do not use U-cards to commit crimes. However, the process of using U-cards to buy and sell virtual currencies is very likely to touch the "red line" of my country's foreign exchange management system. Through unlicensed operators in mainland China, USDT is exchanged for foreign currency and then for RMB, especially when the amount of funds is large (although most U-cards have transaction limits), it is very likely to be linked to disguised foreign exchange trading.

Beware of scams. It is important to choose a well-known card provider to ensure the safety of your funds. Users should avoid using niche or unlicensed service providers, as these companies may not provide adequate fund protection and transaction security measures. In recent years, fraudulent methods such as fake stablecoins and address spoofing have frequently appeared. Users should be wary of phishing websites and fake customer service, and avoid revealing personal information. For example, some scammers will create fake USDT tokens to trick users into transferring money, resulting in financial losses.

Regulatory issues. According to the Notice on Further Preventing and Dealing with the Risks of Speculation in Virtual Currency Transactions (“924 Announcement”) issued by the People’s Bank of China, my country’s regulators have clearly expressed their negative stance and attitude towards cryptocurrencies. However, products such as U-cards have expanded the use scenarios of virtual currencies in my country in disguised form, and their development is contrary to the negative attitude in documents such as the 924 Announcement. If the number of U-card users in China gradually increases in the future, and even the use of U-cards to commit illegal and criminal acts occurs, the survival space of U-cards in the mainland will undoubtedly be sharply compressed. The current negative attitude of regulators is a “dark cloud” floating over the large-scale use of U-cards in China.

summary

USDT bank cards are a convenient cryptocurrency payment method that is popular among cryptocurrency players because they can avoid the "frozen card" problem to a considerable extent. As users, we need to carefully choose issuers when using them and understand the relevant legal and compliance requirements. As the global regulatory environment continues to change, the legal and regulatory framework for cryptocurrencies around the world is changing rapidly. In the future, stricter regulatory measures may emerge, including strengthening supervision of exchanges and payment providers, and formulating new tax policies. These changes may affect the operating model and user experience of USDT bank cards, and users and enterprises need to pay close attention to relevant developments.