LA Blockchain Summit
Prognosis of Defi in the China Market
A Big thank you to our friends over at Draper Goren Holm and LA Blockchain Summit for hosting this webinar on the prognosis of DeFi in the China Market.
Shibin Wang CBO of HKbitEX was joined by Eric Gu of Metaverse and Qi Zhou of Quarkchain for a deep dive into where we are with DeFi in China.
One of the main topics of discussion was how active is the Chinese community on engaging with DeFi, in terms of building and yield farming on protocols like Uniswap and Compound?
The speakers shared the same sentiments in that the Chinese retail community is very active within the DeFi market, aside from having dedicated DeFi groups to discuss potential protocols and rankings of different projects there are groups of what they have termed ‘DeFi Scientists’ that closely watch for new and upcoming projects on a daily basis monitoring different protocols and researching on the governance and value structures.
Alongside speculative investors these different groups of people have created a growing and increasingly mature market.
There are mainly 2 camps of investors that we see in this market, 1 camp who do their own research (DeFi Scientists) and the other who invest for speculation but know relatively little about the underlying protocol and technology. The second camp of people mainly buy their coins through various DAX platforms.
Interestingly what we have been seeing is a rise in DeFi Scientists, forming groups of communities on popular messaging platforms such as Wechat where they tech other users how to yield farm, we see a growth in the knowledge that people gain just by following the momentum within these groups. People with no previous knowledge about the industry are now seasoned farmers and are gaining a lot from this bull run.
As the market matures, we see a lot of participation from existing Institutional and Professional Investors who are already in this space. For others, it’s a market that is still very much in its infancy. Whilst China still has the biggest blockchain market in the world, 99% of the Professional Investors are still not active in this space.
Even though DeFi and the economics behind are not new concepts, Institutional and Professional Investors will still air on the side of caution. They will take an active interest in learning about the space, but for now, remain relatively inactive. Many have tried to apply DeFi to real world applications, for instance if DeFi protocols were available during the rise of P2P lending, the landscape of the industry would be vastly different than what it currently is. In order to attract PIs to the space there needs to be more advanced protocols to show proven economic models that clearly illustrate the risk, liquidity and value models.
‘DeFi models right now are oversimplified with many using over collaterization to price their returns. These are not models that have any proven value behind them. There is a need for real security to back assets in order to give them value, DeFi will have to evolve and lend off the up and coming security tokens and digital asset regulations to further mature and grow the market.’ commented Shibin Wang, CBO, HKbitEX.
He went on to say, ‘the DeFi market currently has no existing fiat gateways making it difficult for anyone not already in the industry to invest. Professional Investors like to trade with the same accounting standards and accountable custody support that they have used for many years. These things can only happen if digitization and tokenization of financial assets happen otherwise there will be a limit on the liquidity of the DeFi market.’
In order to invite more PI to the market DeFi protocols built with a security token aspect that can be used for staking and other market movements will definitely help further the movement, which is why the launch of China’s DCEP is definitely a welcome and exciting update.
Aside from the direction of the market, another existing problem on DeFi protocols is congestion on the Ethereum network and high gas fees. Existing users within the space are already being irritated by these issues. Many speculate that the highly regarded Ethereum 2.0 will solve these problems, however in the interim, in order to increase traffic, increase user base and to attract new users to the space, there needs to be a solution now.
The general consensus is that there could be 3 solutions to the issues at hand:
- Centralization – yes, we know. Centralisation is a bad word and blatantly goes against everything that this industry believes in. However if people place money into regulated, and trusted venues to do the farming and swapping for clients, this will largely decrease the congestion on the network and solve a large part of this problem.
- Building out layer 2 technology – a lot of teams are already researching into this, although there is no concrete answer on whether this will solve the issues or not, the potential is there.
- The use of other smart contract or non-smart contract platforms – such as BVS 5.0 which has its own built in market maker, or solutions like Polkadot and Tron.
In conclusion, DeFi is definitely an emerging market that needs more care and attention. It’s here to stay and has solved a huge liquidity problem for the market. We are hopeful that together with NFT and the after effects from the Bitcoin halving that happened earlier this year, a new bull run is just around the corner.