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Chinese Investors Use DEX To Bypass Ban

China is embracing Decentralized Finance (DeFi) with open arms. It is ranked 4th in DeFi adoption.

The Chinese crackdown on the crypto industry had rocked the global market. 

Exchanges began shutting down, and miners began to migrate to other countries.

But investors cannot move between countries so easily.

So, they turned towards Decentralized Exchanges (DEX) to keep their funds safe or invest, as per a Financial Times article.

Numerous investors have received notices from exchanges about shutting services and accounts.

China Ranks High in DeFi Adoption

Since, Centralized Exchanges (CEX) have shut, rather than closing their accounts, investors are transferring funds to DEXs. 

China is ranked 4th in the Chainalysis Global DeFi Adoption Index.

From June 2020 to June 2021, China received a total of $256 billion in cryptocurrencies, the highest in Asia, and 49 per cent of the total was traded through DeFi platforms, according to a Chainalysis report.

Uniswap, a renowned DEX, is now the 2nd biggest exchange in East Asia.

The latest ban is scaring off new investors from entering the space.

“Most trading will stop because of the ban,” said Deng Jianpeng, director of the Finance, Science and Technology Research Centre at the Beijing-based Central University of Finance and Economics. “But there will always be some people who will try to find new investment routes, like using an overseas platform or through decentralised exchanges.”

DeFi protocols do not require any identity proofs and are not obligated to follow the “Know Your Customer” norms, unlike the CEXs.

“Many Chinese are now studying how to use DeFi, but there is uncertainty about this too, with the US government looking to tighten controls,” said Colin Wu, a crypto-journalist.

But Chinese investors cannot transfer funds from DeFi protocols to Chinese bank accounts. “The government is cutting the link between cryptocurrency and fiat currency,” said Zee Zheng, founder and CEO of SpaceChain, a company focused on space applications for blockchain technology.

The Affluent Will Make It

Wealthy investors can transfer their funds to overseas accounts. They may face some hassles but will be able to execute their trades.

Zheng also said: “The government is not going after the one per cent who are trading at the fringes. For them, it is sufficient that the restrictions are strict enough to stop the 99 per cent trading.”

Chainanlysis also found that countries like the US and China with large institutional investors, take the lead in DeFi adoption.

So, the crackdown will pull away crypto from the masses unless they also find some way around it. A ban can reduce DeFi but cannot stop it. The whole DeFi space emerged just to avoid centralized control.

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