China is among the top four of countries ranking highest in grassroots decentralized finance (or DeFi) adoption, according to Chainalysis’ 2021 Global DeFi Adoption Index Top 20 released on Tuesday August 24. 

The report, the first of the geographic index ranking countries by DeFi adoption specifically, is designed to highlight countries with the highest grassroots adoption by individuals and not just those sending the largest raw values of funds.

It says while grassroots cryptocurrency adoption may be generally highest in emerging markets, DeFi adoption has been the strongest in high-income countries that already had substantial cryptocurrency usage, especially amongst traders and institutional investors. 

It notes that DeFi is disproportionately popular for bigger investors compared to cryptocurrency as a whole. Large institutional transactions, meaning those above $10 million in USD, accounted for over 60% of DeFi transactions in Q2 2021, compared to under 50% for all cryptocurrency transactions.

The DeFi market size, which stood at USD 1.85 bln in 2020 and has since grown to over $80 bln as at this writing, shows its growth potential for even more technology and use cases to develop. The burgeoning prospect of these financial services offered on public blockchains becoming bigger has been cited as a major factor fuelling the cryptocurrency market boom. 

With its emergence being likened to the advent of the internet, DeFi is getting governments around the world to start to pay attention. 

China’s DeFi craze – which had about $1 bln total value locked before December 2020 – started soaring on the country’s social media platform last year according to WeChat Index, with Chinese DeFi startups reaching many crypto investors through wallets. 

The Chainalysis report puts China behind the United States (1.00), Vietnam (0.82) and Thailand (0.68) with a 0.62 score as the blockchain firm follows DeFi adoption over time at the regional level based on historic web traffic data for DeFi protocols.

The report is coming after a popular Chinese DeFi platform, Poly Network, was exploited by an hacker which initially made away digital assets worth about $600 mln but later returned them after some negotiations. It says that the vast majority of web traffic to DeFi protocols came from North America with later growth from Western Europe. It states: 

“Around June 2020, we see more and more traffic from other regions, especially Central and Southern Asia, as total value sent to DeFi platforms begins to explode. Though China has become one of the biggest single countries for DeFi transaction volume, East Asia’s regional share of DeFi protocol web traffic remains low in comparison to its share of traffic to centralized cryptocurrency services.”

David Gogel, Growth Lead at dydx, a DeFi protocol, told Chainalysis that large-scale traders – including individuals operating at a professional level to cryptocurrency hedge funds – have been the biggest adopters of DeFi so far. 

“Right now, DeFi is targeted towards crypto insiders,” Gogel said in the report as he cites the U.S., China, Russia, and several Western European countries with high cryptocurrency adoption as key growth markets for DeFi. “It’s people who have been in the industry for a while and have enough funds to experiment with new assets. In the long run as ETH gas prices fall, it’ll become accessible to more people.”

The index used three metrics to rank all 154 countries. They are on-chain cryptocurrency value received by DeFi platforms weighted by PPP per capita; total retail value received by DeFi platforms; and individual deposits to DeFi platforms.