DeFi and DEX volumes soar amid China’s crypto ban and US regulatory risk
Data shows that crypto holders are increasingly shifting to DeFi protocols and DEXs as China continues its cryptocurrency crackdown and fears of heavy-handed regulation scare US-based traders.
Last week, China’s heavy-handed crackdown on crypto trading briefly sent shockwaves across the market as Bitcoin (BTC) and altcoin prices saw a sharp drop following the announcement, but as is the case with all things crypto-related, the market bounced back as resilient traders found other ways to participate in the market.
Part of China’s goal in limiting citizens’ ability to trade cryptocurrency seems focused on discouraging the use of cryptocurrencies and the growing decentralized finance (DeFi) ecosystem, but these maneuvers appear to be having the opposite effect, as the token price and protocol activity for projects like Uniswap and dYdX have seen an uptick since the crackdown began.
According to data from Chainalysis, there has been a significant amount of regional Bitcoin flows happening within eastern Asia, as highlighted by the tall orange bar in the graph below. This suggests that crypto holders in the region have been shifting around their holdings in response to the regulatory crackdown.
As stated by Chainalysis, “Assets typically flow within a region, likely due to preferences for local exchanges, but flows between regions often occur as a result of regulatory concerns, geopolitical changes, or significant market price variations.”
The lack of flows out of Eastern Asia, combined with crypto exchanges like Huobi and Binance suspending services for Chinese residents, suggests that funds are being kept within the region — but not on centralized exchanges.
It seems Huobi users moved $ETH, #stablecoins, and DEX tokens to decentralized exchanges like Uniswap.
Outflow transactions spiked after Huobi announced the suspension of existing accounts in mainland China.
Ironically, regulation led to decentralization this time. pic.twitter.com/EKpkHIdSv0
— Ki Young Ju 주기영 (@ki_young_ju) September 29, 2021
Related: Derivatives DEX dYdX beats out Coinbase’s spot markets by volume amid China FUD
Gains in the DeFi ecosystem
At the same time that this increased movement within the East Asia region was occurring, activity on decentralized exchanges like Uniswap and the decentralized derivatives exchange dYdX has been on the rise as traders in China seek out a safe haven for their crypto activities.
DYdX is a particularly helpful data point, as it is now the most widely used decentralized derivatives exchange and has seen a spike in demand since regulators from around the world dropped the hammer on centralized exchanges with loose Know Your Customer policies that offer derivatives services.
According to data from Token Terminal, dYdX is in the top five ranking for numerous categories over the past week, including the increase in DYDX token price, total protocol revenue, fees paid, the price-to-sales ratio and the price-to-earnings ratio. The exchange also rose to the top six in terms of increases in total value locked.
A closer look at the available data also shows that layer-two protocols and layer-one Ethereum competitors have also seen some of the biggest gains over the past week, led by Avalanche-based protocols like Trader Joe and Pangolin, as well as the Fantom network.
Above all else, what the recent data shows is that the decentralized finance ecosystem is performing as it was originally intended by providing an uncensorable way for crypto holders to transact outside of the control and purview of governments and financial regulators.
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