Introduction

In recent years, with the rapid development of the cryptocurrency market and digital payment technologies, several exchanges and wallet service providers have launched their own USDT/USDC prepaid card products. USDT/USDC prepaid card have increasingly become a tool for Web3 users to conduct cross-border payments and everyday transactions. At the same time, discussions about USDT/USDC prepaid card on various social media platforms have surged, making them a hot topic. Some view USDT/USDC prepaid card as a key solution to cryptocurrency OTC challenges, while others remain cautious or skeptical.

In this article, FinTax will introduce the basics of USDT/USDC prepaid card and highlight the tax and other risks that should not be overlooked.

1.Introduction to USDT/USDC Prepaid Card

1.1 What Is A USDT/USDC Prepaid Card?

A USDT/USDC prepaid card is a financial service tool designed for cryptocurrency investors. Similar to traditional bank cards, USDT/USDC prepaid card allow users to make purchases or withdraw cash directly without the need to convert cryptocurrency into fiat currency in advance.

USDT/USDC prepaid card are categorized into two main types:

• Physical USDT/USDC prepaid card, such as Mastercard USDT/USDC prepaid card and UnionPay USDT/USDC prepaid card, which have a wider acceptance and are more commonly used.

• Virtual USDT/USDC prepaid card, such as Dupay, which are mostly used for e-commerce and international payments. These cards offer greater convenience and flexibility but do not support ATM cash withdrawals.

Common USDT/USDC Prepaid Card Issuance Models:

Direct Issuance by Banks — Banks leverage their payment networks and compliance frameworks to offer stable cryptocurrency payment solutions.

Bank-Crypto Company Partnership — Banks provide the traditional financial infrastructure, while third-party companies manage and convert cryptocurrency.

Independent Issuance by Crypto Payment Companies — Some companies specializing in cryptocurrency payments issue USDT/USDC prepaid card independently by partnering with payment networks like Visa or Mastercard.

SaaS Model for USDT/USDC prepaid card Issuance — Certain third-party payment providers offer USDT/USDC prepaid card issuance platforms to merchants and financial service providers via the Software-as-a-Service (SaaS) model.

1.2 How Does A USDT/USDC Prepaid Card Work?

USDT/USDC prepaid card are widely accepted due to their ease of use, which can be understood in two main steps:

· Top-up Process — Users deposit USDT into their wallets, then transfer USDT from the wallet to their USDT/USDC prepaid card address. The USDT/USDC prepaid card operator then converts USDT into the corresponding foreign currency.

· Withdrawals and Payments — Users can withdraw cash from ATMs worldwide or directly use the USDT/USDC prepaid card for payments. At the point of transaction, payments are made in the converted fiat currency instead of USDT.

2.Why Are USDT/USDC Prepaid Card so Popular?

2.1 Privacy Protection

Web3 users often value privacy, especially in transactions, and prefer to remain anonymous during payments or transfers. USDT/USDC prepaid card provide strong privacy protection mechanisms:

• Virtual USDT/USDC prepaid card usually do not require real-name registration, allowing users to purchase or top up anonymously.

• Although physical USDT/USDC prepaid card may require some level of KYC verification, they still expose significantly less personal information compared to traditional bank transactions.

2.2 Simplified Payment Process

USDT/USDC prepaid card enable real-time payments and settlements, avoiding the delays that can occur with traditional bank transfers. Additionally, users do not need to pre-convert USDT into fiat currency before using the card, making it highly convenient. Apart from traditional POS payments, USDT/USDC prepaid card also support payments through digital wallets and QR codes, making them compatible with various mainstream payment channels and highly flexible.

2.3 Lower Cross-Border Payment Costs

USDT/USDC prepaid card typically charge significantly lower fees than traditional payment channels, especially for cross-border transactions. The table below compares the cross-border fees of various payment methods:

3. Potential Risks of USDT/USDC prepaid card

3.1 Tax Risks

Due to their anonymity or minimal KYC requirements, some users attempt to use USDT/USDC prepaid card for tax evasion, such as concealing income sources to reduce taxable amounts. However, such tax avoidance through USDT/USDC prepaid card is ultimately impractical.

First, although USDT/USDC prepaid card offer some degree of anonymity, most of them still rely on international payment networks (Visa, Mastercard, etc.), which keep detailed transaction records. These records include transaction amounts, merchant information, and timestamps, allowing tax authorities to track fund flows.

Second, for cross-border transactions, tax authorities can utilize foreign exchange monitoring systems and interbank information-sharing mechanisms. Many countries have signed the Common Reporting Standard (CRS), making cross-border transactions more transparent.

Lastly, payment platforms often impose stricter identity verification requirements on large transactions. Attempting to evade taxes using USDT/USDC prepaid card may not only be ineffective but could also lead to tax audits and legal penalties.

3.2 Financial Security Risks

1. Risk of Fund Theft

Just like traditional credit cards, USDT/USDC prepaid card are susceptible to fraud and cyber threats. Hackers, system vulnerabilities, and phishing attacks can expose users’ personal information, leading to potential fund theft. Once USDT/USDC prepaid card funds are transferred on-chain, recovery becomes significantly more difficult.

2. Freezing Risks

· OTC Transaction Risk — Crypto investors often rely on OTC trading to convert crypto into fiat, which may involve illicit funds, leading to account freezing.

· Blacklisted USDT Risk — If a cryptocurrency investor’s exchange account receives blacklisted USDT (Black U), their account may be frozen.

· Issuer Monitoring — Some USDT/USDC prepaid card issuers may implement on-chain monitoring systems to track fund legitimacy, which could also lead to freezing.

3.3 Legal Risks

Using USDT/USDC prepaid card also involves certain legal risks:

· Foreign Exchange Regulations — Exceeding foreign exchange limits may violate national regulations, leading to fines or legal consequences.

· Crypto Regulations — Some countries ban cryptocurrencies entirely, making crypto-based USDT/USDC prepaid card transactions illegal.

· Criminal Risks — Engaging in high-frequency, high-value transactions or facilitating illicit cash-outs may result in money laundering or illegal business operation charges.

4. Conclusion

USDT/USDC prepaid card offer strong privacy protection, convenient payments, and low transaction fees, making them an attractive off-chain payment solution for cryptocurrency investors. However, they are not without drawbacks. At the same time, users also have been facing tax risks, financial security concerns, and legal compliance issues. Failure to exercise caution may lead to unintended financial and legal consequences.

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