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China - The Rise of the New DeFi Superpower

16 Oct 2020 | News


China is one of the most important global players when it comes to the cryptocurrency industry. Some of the biggest crypto mining operations and mining pools are located or founded in this country with a population of 1.4 billion. Moreover, the world’s biggest cryptocurrency exchanges, such as Binance and Huobi, originated in China. Despite the high demand from Chinese crypto traders, China is yet to become a dominant force in the DeFi sector.

China’s unpopular regulatory wireframe for cryptocurrencies is something that represents a huge barrier to the adoption of DeFi in the region. That is the sole reason why both of the mentioned cryptocurrency exchanges are operating overseas. Nevertheless, Chinese citizens are still allowed to trade digital assets, so there could still be an opportunity for DeFi to fully penetrate the country’s market. 

Because of the latter, China is considered a huge market with enormous potential. Its purchasing power means that it can create an unfailing source of liquidity in cryptocurrency trading, and that is something that benefits investors and service providers alike. Thus, it is only natural that existing and upcoming DeFi projects will look to Chinese investors to utilize their protocols and take them to the next level. 

The DeFi Adoption Obstacles 

The majority of DeFi projects and protocols favor Ethereum to do the legwork. Most DeFi developers use Ethereum’s blockchain as the cornerstone for protocol development since a good number of them worked on producing Ethereum itself. Despite all the biggest Ethereum mining operations and pools being located in China, the country’s ETH community is not as strong as it is in some of the niche’s more competitive markets. The fact that China does not have a single top 10 Ethereum development team speaks for itself. 

 Most probably, that’s the place to start searching for reasons for Chinese DeFi protocol production inertness. Besides the shortage of domestic products, the Chinese have other obstacles towards DeFi adoption. One such being the lack of the customer and language support in mandarin across the whole cryptocurrency DeFi sector. Since China is a colossal market, investors are used to communicating in their native language. However, even when explained in a native tongue, DeFi is complicated to understand. In the absence of such a service, Chinese investors remain more cautious towards such investments. 

Their caution increased by the latest FCoin liquidity mining flop that showed some notable shortcomings of yield farming. FCoin’s “transactions as mining” system incentivized investors to transact as much as possible. Since the exchange reimbursed 100% of the transaction fees, traders pushed the price to such unsustainable levels that the system failed to process users’ withdrawal demands. 

All this adds up to the absence of domestic Chinese DeFi products as the inability to raise funds in the region drives the development teams away from the niche. 

DeFi is Penetrating the Chinese Market 

Regardless of the challenges, DeFi projects like MCDEX, DForce, MakerDAO, Compound, Kyber Network, and Loopring are gaining traction with investors. The first two in particular are making it easier for Chinese to onboard the DeFi train.  

MCDEX, by launching MCfund, allows local individuals to deposit their funds and choose between existing trading strategies, making DeFi much more user-friendly for an average investor. On the other hand, DForce focuses on connecting existing DeFi protocols in China and globally into a DeFi supernetwork. This will not only make DeFi more accessible for users but enable more development opportunities.  

 Furthermore, the Chinese jurisdiction renegade, Huobi, is launching the Global DeFi Alliance. The move is a significant one as the company is originally from China but has offices in the United States. This is perfect to bridge the DeFi gap between east and west. This way, Huobi may pull together a huge liquidity pool we mentioned in the opening paragraphs. 

DeFi Needs China 

The global DeFi market needs China just the same as the Chinese investors need to keep pace with global investment trends. China is famous for taking western ideas and making them grow. Starting from mass production across e-commerce, all the way to social networks, China has turned every western idea into a gigantic sustainable industry. If we take a look at Alibaba or WeChat, it is clear what such an enormous market can do for the industry.  

In the case of DeFi, China is on the verge of becoming a superpower in yet another industry niche. However, since the nature of DeFi is borderless and decentralized, the rise of China’s DeFi production and investment is globally beneficial.