This weekly roundup of news from mainland China, Taiwan, and Hong Kong attempts to curate the industry’s top news, including influential projects, changes in the regulatory landscape, and corporate blockchain integrations.
To ThorCHAIN and Chain swap It is safe to say that hacking cross-chain bridges seems to be the style of the season. This week it was the local Poly Network project that got fleeced $ 615 million before leading the crypto community on a dramatic witch hunt to track down the attacker. While most news outlets have covered this story at length, there are still a few points worth analyzing.
Who are these projects?
The first point is that most Western DeFi users had never heard of Poly Network, despite amassing a total of over $ 600 million in value. Primitive Capital’s Dovey Wan reported on Twitter when she found that “the Chinese crypto community always has its own version of using the same blockchain infra for better and for worse, most of which are invisible and inaccessible to westerners. “
It was only after Poly was hacked that most CTs found out about this “Crosschain” project with over $ 500 million in TVL, just like the PlusToken case in 2018
In mainland China there is a VERY lively, but completely different “Defi” community, despite the ban, despite a lot of carpets and hacks
– Dovey “Rug The Fiat” Wan🪐🦖 (@DoveyWan) August 11, 2021
Why are Chinese projects so far under the radar? The first reason could be a cultural and linguistic barrier as Chinese marketing teams struggle to integrate into the fast-paced and esoteric world of Crypto Twitter.
Instead of trying to win over global communities, they focus on integrations that users can address directly.
According to SimilarWeb, Poly Network gained over 58% of its web traffic from referrals to third party websites, with Chinese DApps OpenOcean, O3 Swap and Wing Finance topping the list. In contrast, Compound Finance receives more than half of its visits from direct hits, with only 16% coming from third-party websites.
Compound’s two top referral websites are CoinMarketCap and CoinGecko. This shows that the difference in behavior between Chinese and international users is fairly palpable and that two very different strategies are required to capture both target groups.
Untangling the web
Another taboo subject is that many of these large Chinese DeFi projects have ties to other projects. Poly Network has links to the O3 network, which Neo itself incubates. The extent to which Neo is involved is unclear, but it explains why Poly Network founders rarely market in public. These “founders” are often only the figureheads of the parent company. The parent company benefits from all the advantages of introducing a second token without running the reputational or legal risk of being tied to it. If the side project is successful, it can support the main network. When it fails, everyone goes on with their life pretending it never happened.
It’s a huge PR issue for O3Swap as many of their users’ assets were compromised in the attack. This isn’t the first time the team has dealt with negativity as they have been accused of having written a back door function in their code that would allow them to do rug pull. While this has never been exploited, it raises eyebrows at the intentions of the developers.
After hacking a lot of negativity flooded local social media with comments questioning the integrity of China-made projects. One user on Weibo said he could be beaten to death before touching a Chinese project, while another user just described it as an inside job.
The bigger problem with this is that before DeFi, substandard projects would never get off the ground, resulting in a slow and painful gentle decline in value for token holders. In this model, investors may still have the option to recoup some of their funds through sales in secondary markets.
In the new model of DeFi forks, code can be deployed very quickly without adequate risk control, accumulating hundreds of millions of dollars in TVL. Audits can be superficial, and staggering returns can tempt retail investors to provide liquidity. If the code is compromised, all assets will be lost, resulting in a much faster and wider loss for investors.
In search of silver lining
The biggest positive thing about all of this was the quick and collaborative response from the Chinese blockchain community. Smart contract auditor Slowmist quickly worked with exchanges to limit the attacker’s ability to liquidate funds. The company blog states:
“Special thanks go to the teams such as Hoo, Poly Network, Huobi ZLabs, ChainNews, WePiggy, TokenPocket, Bibox, OkLink and many individual partners for synchronizing relevant attacker information with the SlowMist security team in a timely manner and buying valuable time under the premise of compliance to pursue the attacker. “
Huobi’s co-founder Du June also voted this on social media, stating that they would do everything in their power to protect the crypto community. This will be a welcome sign for Chinese DeFi users who want to see trust rebuild between local players.
Huobi took note of the large sum that was stolen from the #PolyNetwork tonight. Our risk control and security teams are already tracking and identifying the addresses involved. We will do everything in our power to support and protect the crypto community. # Stronger together
– You Jun (@DujunX) August 10, 2021