In the past few months there have been some major developments from China that have rocked the cryptocurrency market and global financial markets. China’s Evergrande debt repayment crisis sparked shock waves in global equity markets, and the consistent signaling of impending regulation of stablecoins and decentralized finance (DeFi) by the U.S. Securities and Exchange Commission continued to weigh on market sentiment.
While the Evergrande situation has resolved itself somewhat, the government’s crackdown on unregulated DeFi platforms and stablecoin transactions continues for the time being. This has resulted in cross-chain-powered Layer-One protocols and Layer-Two solutions that are seeing increased volume as merchants look for non-centralized places to interact with.
According to CryptoQuant CEO Ki Young Ju, major cryptocurrency exchanges like Huobi shut down services for accounts in mainland China after China announced a ban on all cryptocurrency transactions.
This triggered an exodus of funds from Asia-based centralized exchanges (CEXs), and those funds were eventually deposited into decentralized exchanges (DEXs) and the broader decentralized financial (DeFi) ecosystem.
It appears that Huobi users have moved $ ETH, #stablecoins, and DEX tokens to decentralized exchanges like Uniswap.
The outflow transactions soared after Huobi announced it would freeze existing accounts in mainland China.
Ironically, this time regulation led to decentralization. pic.twitter.com/EKpkHIdSv0
– Ki Young Ju 주기영 (@ki_young_ju) September 29, 2021
This phenomenon is particularly interesting and requires further investigation as the London hard fork of Ethereum in addressing unsustainable gas charges and growing regulatory concerns over the US and China’s response to cryptocurrencies are suspected.
Let’s take a look at some of the recent thriving DEXs and popular protocols that are seeing spikes in inflows.
The Ethereum network
The Ethereum network is by far the most dominant smart contract and is home to the largest and most widely used decentralized exchanges such as Uniswap (UNI) and SushiSwap (SUSHI), according to data from Dune Analytics.
While the recent ban on cryptocurrencies from China dominated the headlines for the last two weeks of September, the announcement was originally made on September 3, around the same time activity spiked on Uniswap.
As shown in the graph above, Uniswap’s increase in activity and trading volume actually started on August 28th and stayed above its previous average for the next several weeks.
Uniswap has also benefited from its recent integrations with the newly released Layer 2 solutions Optimism and Arbitrum, which have helped reduce transaction costs and reduce confirmation times for users on the network.
The Fantom network
The Fantom protocol has grown in prominence in recent months thanks to the launch of a bridge to the Ethereum network and a 370 million FTM developer incentive program designed to attract new projects to the Fantom ecosystem.
Data from Token Terminal shows that the announcement of the incentive program on August 30th caused an initial increase in log revenue and the token price, but only after the official announcement from China on September 3rd did this activity and log revenue really experience a sustained increase.
Fantom uses a directed acyclic graph architecture that enables high throughput capability for near zero fees, which has helped the protocol gain popularity with DeFi and NFT traders who were too expensive to conduct transactions on Ethereum.
SpookSwap and SpiritSwap are the two top DEXs in the Fantom network and together currently handle an average 24-hour trading volume of $ 95 million.
The Avalanche Network is a blockchain protocol that has been gaining traction since the Avalanche Rush Liquidity Mining Incentive Program was launched in mid-August, which includes more than $ 180 million in rewards and incentives to generate liquidity for Win the DeFi ecosystem on Avalanche.
Since the incentive program was released in mid-August, log revenue and token value for the AVAX native token have increased as users moved assets across chains to participate in Avalanche’s growing DeFi ecosystem.
According to DefiLlama data, the top DEXs on Avalanche Trader Joe (JOE) and Pangolin (PNG), which together currently have an average 24-hour trading volume of $ 355.2 million.
Decentralized trading in perpetual securities
Perpetuals decentralized trading protocol dYdX, which exploded in September following the airdrop of its native DYDX token, has also seen an increase in user activity and volume.
According to Token Terminal, the daily trading volume on the exchange exploded in the last days of September from an average of under $ 2.1 billion to over $ 9 billion on September 27.
The regulatory crackdown has been particularly tough on derivative and leveraged cryptocurrency exchanges like BitMEX and Binance, which has led to increased demand for decentralized options like dYdX and Hegic.
While many across China’s cryptocurrency ecosystem lamented the crackdown on the crypto sector, its clumsiness may indeed have turned out to be a hidden blessing. It prompted traders to move away from centralized exchanges and immerse themselves in the rapidly growing DeFi ecosystem, where the ethos of decentralization and the ability to “be your own bank” are still available to those who seek it .
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