Edition November 11, 2026

The Shadow Market Behind China’s AI Model Distillation Boom

A shadow market gives Chinese users access to U.S.-restricted frontier models, allowing Chinese companies to distill their capabilities into homegrown systems at a fraction of the training cost.

A survey of 100 proxy services found that 40% also accepted cryptocurrency, predominantly stablecoins; the services also took fiat payments, including through China-based processors such as WeChat and AliPay. Payments from suspected China-linked wallets rise above normal levels in the days after a frontier model is released, a pattern consistent with efforts to gain new capabilities quickly, though aggregate data cannot confirm the cause.

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