Decentralized exchanges are gaining momentum in China in an aftermath of the blanket ban on cryptocurrency by the Chinese government. Some investors are defying the ban by using decentralized exchanges to continue their crypto trade, this is despite the closure of centralized exchanges in the country.
It has been noted that the Chinese government cannot stop this decentralized exchanges and DeFi since they do not have a centralized intermediary. This has led to debates about the usefulness of banning cryptocurrency in the first instance, since the users can simply circumvent these barriers.
China Bans Cryptocurrency
The Chinese government issued a ban on cryptocurrency and since then the crypto industry in the country has been suspended. Due to this ban in China, the US has taken the spot as the preferred location for miners. There was a crash in the prices of cryptocurrencies following the ban in China, however the prices of cryptocurrencies is currently on the rise, suggesting the market may have moved past the ban in China.
Several reasons were stated by the Chinese government to explain the need for a blanket ban on crypto. Protecting the environment from carbon emission from energy use associated with crypto mining, was one reason stated. Another reason given was that crypto could be associated with financial fraud and terrorism and hence banning it is the right thing.
These reasons stated for the ban are not accepted by some observers, speculations that the ban might be to promote the digital yuan. Hence, by eliminating the competition for China’s digital currency, the adoption of the digital currency can improve. However, It has been shown that crypto enthusiasts will find a way around the ban declared by the government.
Some also point to the dominance of Tether in the stablecoin market as a result of Chinese investors using the stablecoin to circumvent the fiat to crypto ban. Now decentralized exchanges and peer-to-peer are replacing centralized exchanges as the way to trade crypto in China. This will question the wisdom in banning crypto in the first instance by the Chinese government.
Circumventing the Crypto Ban
According to research by Chainalysis, actions against crypto by the Chinese government in the past have reduced the crypto trade volume in the country. The country’s share of global Bitcoin transactions has dropped from a peak of 15% to 5% even though China is still the biggest crypto market in Asia. The Chinese crypto market had about $256 billion trade volume from January to June this year, and DeFi almost half of the entire trading volume. This results in Uniswap now becoming the second largest exchange by trade volume in East Asia.
Deng Jianpeng claimed that the ban actually had some intended effect, as it reduced the number of new participants in crypto trading. Though he acknowledges that the experienced traders are not stopping due to the ban. He said that some people will always find new ways of investing such as using a foreign platform or the decentralized exchanges.
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