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China’s broad crypto ban has a significant impact on token values, but the surge in DEX volumes and BTC’s rise above $55,000 suggest the move was a blessing in disguise.
There have been some major developments coming out of China in recent months that have shook the cryptocurrency market and the global financial markets. China’s Evergrande debt repayment crisis sent shockwaves through global equity markets, while the Securities and Exchange Commission’s (SEC) consistent signalling of upcoming regulation for stablecoins and decentralised finance (DeFi) continued to weigh on market sentiment.
While the Evergrande situation somewhat resolved itself, for the time being, the government crackdown on unregulated DeFi platforms and stablecoin transactions continues. This has resulted in cross-chain equipped layer-one protocols and layer-two solutions seeing increased volumes as traders search for non-centralized venues to interact with.
According to CryptoQuant CEO Ki Young Ju, major cryptocurrency exchanges such as Huobi suspended services for accounts in mainland China after China announced a ban on all cryptocurrency transactions.
This resulted in a fund exodus from Asia-based centralised exchanges (CEXs), with funds eventually being deposited on decentralised exchanges (DEXs) and the broader decentralised finance (DeFi) ecosystem.
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
This phenomenon is particularly interesting and requires further investigation, given the assumed failure of Ethereum’s London hard fork in addressing untenable gas fees and the regulatory concerns mounting over the U.S. and China’s response to cryptocurrencies.
Let’s take a look at some of the recent thriving DEXs and popular protocols that are seeing an increase in inflows.
The Ethereum network
The Ethereum network is by far the most dominant smart contract and it hosts the largest and most used decentralized exchanges like Uniswap (UNI) and SushiSwap (SUSHI), according to data from Dune Analytics.
While the most recent cryptocurrency ban out of China dominated headlines in the last two weeks of September, the announcement was originally made on Sept. 3, around the same time that activity on Uniswap surged higher.
The spike in Uniswap activity and trading volume, as shown in the graph above, began on August 28 and remained elevated above its previous average for the next few weeks.
Uniswap has also benefited from recent integrations with the newly released layer-two solutions Optimism and Arbitrum, which have helped to lower transaction costs and accelerate confirmation times for network users.
The Fantom network
The Fantom protocol has gained traction in recent months as a result of the launch of a bridge to the Ethereum network and a 370 million FTM developer incentive programme aimed at attracting new projects to the Fantom ecosystem.
According to Token Terminal data, while the announcement of the incentive programme on Aug. 30 provided an initial boost in protocol revenue and token price, it wasn’t until after China’s regulatory announcement on Sept. 3 that activity and protocol revenue truly increased.
Fantom employs a directed acyclic graph architecture, which enables high throughput for near-zero fees, allowing the protocol to gain popularity among DeFi and NFT traders who were previously priced out of conducting transactions on ETH.
SpookSwap and SpiritSwap are the two most active DEXs on the Fantom network, with a combined daily trading volume of $95 million.
The Avalanche network is a blockchain protocol that has gained traction since the launch of the Avalanche Rush liquidity mining incentive programme in mid-August, which includes more than $180 million in rewards and incentives designed to attract liquidity to the DeFi ecosystem on Avalanche.
Since the release of the incentive program in mid-August, the protocol revenue and token value for the native token AVAX have been on the rise as users transferred assets across-chain to engage in Avalanche’s growing DeFi ecosystem.
The top DEXs on Avalanche, according to DefiLlama data, are Trader Joe (JOE) and Pangolin (PNG), which have a combined average 24-hour trading volume of $355.2 million.
Trading in decentralised perpetuals
The decentralised perpetuals trading protocol dYdX has seen an increase in user activity and volumes following the airdrop of its native DYDX token in September.
According to Token Terminal data, the exchange’s daily trading volume exploded in the final days of September, rising from an average of less than $2.1 billion to more than $9 billion on Sept. 27.
The regulatory crackdown has been particularly harsh on derivative and leveraged cryptocurrency exchanges such as BitMEX and Binance, fueling demand for decentralised options such as dYdX and Hegic.
While many in the cryptocurrency ecosystem were outraged by China’s crackdown on the crypto sector, their harshness may have turned out to be a blessing in disguise. It prompted traders to leave centralised exchanges in favour of the rapidly expanding DeFi ecosystem, where the ethos of decentralisation and the ability to “be your own bank” is still available to those who seek it.