The data shows investors are fleeing to DeFi and DEX protocols as China continues cracking down on cryptocurrencies and concerns about cumbersome regulations discourage US traders.
Last week crackdown on crypto trading from China sparked shock waves across the market, driving Bitcoin and Altcoin prices down. But as with all crypto-related cases, the market rebounded as traders found other ways to get into the market.
Part of China’s goal of restricting citizens’ ability to trade cryptocurrencies seems to focus on discouraging cryptocurrency usage and the burgeoning DeFi ecosystem, but these moves appear to have had the opposite effect than token prices and protocol activities for projects like Uniswap (UNI) and dYdX (DYDX) have increased since the crackdown began.
follow data There has been a significant bitcoin outflow from Chainalysis in the East Asia region, indicated by the tall orange bar in the graphic below. This suggests that owners in the region have relocated their holdings in response to regulatory action.
“The flow of wealth within a region may be due to a preference for local exchanges, but flows between regions often occur due to regulatory concerns, geopolitical changes or market price diversification.”
Bitcoin flow by region | Source: chain analysis
With the outflow not coming from East Asia along with exchanges like Huobi and Binance, the suspension of services to Chinese residents suggests that funds are still in the region, but not on centralized exchanges (CEX).
The outflow transactions soared after Huobi announced it would freeze existing accounts in mainland China.
Ironically, this time around, regulation led to decentralization. pic.twitter.com/EKpkHIdSv0
– Ki Young Ju (@ki_young_ju) September 29, 2021
Outflows rose after Huobi announced it would gradually freeze existing accounts in mainland China.
Ironically, this time regulation leads to decentralization. “
Benefits in the DeFi ecosystem
Simultaneously with an increase in flows in the East Asian region, activity on DEXs like Uniswap and dYdX has increased as Chinese traders seek a safe haven for their crypto activities.
Trading Volume vs Total Revenue of Uniswap | Source: Token Terminal
DydX is an especially useful data point as it is currently the most widely used decentralized derivatives exchange and has seen a surge in demand after regulators around the world tightened controls; CEXs with loose KYC policies that offer derivative services.
follow data From Token Terminal, dYdX has been in the top 5 rankings for the past week in multiple categories including Prize Earnings, Total Revenue from the Log, Fees Payable, Price-to-Sales Ratio, and Price-to-Earning Ratio. DYdX also climbed into the top 6 for Total Value Locked (TVL).
Total sales vs. total value locked on dYdX | Source: Token Terminal
A closer look at the available data also reveals that Layer 2 protocols and their Ethereum Layer 1 competitors have also seen tremendous gains over the past week, led by protocols based on Ethereum, avalanches like Trader Joe and Pangolin as well the Fantom network.
In short, recent data shows that the DeFi ecosystem is functioning as originally intended by providing a way to own transactional cryptocurrencies outside the control of governments and regulators.
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According to Cointelegraph