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Why a DeFi Surge in China

A surge in decentralized finance (DeFi) growth in China is a result of the strict regulations in the crypto sector of Japan, South Korea, and certain American and European countries, a Chinese market development specialist has opined.

Hugo Xia notes that the regulations in the given jurisdictions, especially with exchange listings, have seen more DeFi projects flood into exchanges in China thus contributing to DeFi’s overall growth especially in the second quarter of 2020 which saw the entire crypto ecosystem recover from March 12 event when crypto prices drop 40% in one day.

Active users on Ethereum-based decentralized applications (dApps) doubled in Q2 2020 to reach 1,258,527 users (from 637,278 in Q1), according to Dapp.com’s market report – active dApp users on EOS and Tron also grew by 30% and 50% respectively, reaching 116,389 and 392,657 respectively. Its transaction volume reached $5.7 bln in June to make up over 97% of the entire dApp volume. Q1 though witnessed the greatest amount of ETH locked in history while the total ETH locked on the network decreased and then stagnated for most of Q2 (between 2.5 mln and 3 mln).

Overall, Q2 2020 ended with 1,394 active dApps, 2,808,050 active dApp users, and a total transaction volume of $12.43 bln on 12 public blockchains – Ethereum, EOS, TRON, Steem, Hive, Chiliz, Terra, ICON, Klaytn, NEO, Tomochain, IOST and Vexanium.

Xia believes this recent leg of growth has been driven by the DeFi wave even as Consensys’ Q2 2020 DeFi report outlines three key events that defined Ethereum DeFi within the period: BTC on Ethereum overtaking BTC on the Lightning Network; three major security incidents responsible for $26 mln being hacked; and the release of COMP and the frenzy of yield farming.

DeFi, powered by smart contracts running on decentralized networks like Ethereum and digital currencies, is seeing its ecosystem undergo explosive growth with the likes of USDC reaching a $1 bln market cap in less than two years and the total value of assets stored in various DeFi services at over $2 bln in less than three years.  Locked funds are those that consumers have trusted to send to the smart contracts that make up the DeFi ecosystem.

As blockchain-based financial instruments, the DeFi concept may have been around for a long time but its resurgence in 2020 is tied to two major reasons, Xia adds., stating:

“First, the purchasing power of the market, especially that of China, has increased tremendously under the COVID-19 pandemic. The second reason is that the concept of DeFi is finally being translated to DeFi products, many DeFi protocol’s underlying smart contracts are being utilized into making exciting products come to life, this is a huge progress comparing to last year’s centralized projects operate under a decentralized guise.”

The “enormous market share and high purchasing power in China” have also caused a large number of DeFi projects like MakerDAO, Compound, DForce, Kyber Network, and Loopring to go viral in China, he stated, thus giving a boost to the Asian giant’s booming blockchain market.

Still in its infancy, though with small shocks likely to have a huge impact on its entirety, the DeFi services’ recent surge can translate to more DeFi financing products and projects that will truly shape industry developments in a decentralized manner and build the next generation of financial systems, Xia concluded.

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