- DeFi performs parallel financial arrangements outside governmental regulatory systems.
- Cryptocurrency regulations are deemed to increase asset security and inch closer to centralized standards.
- China’s ban on cryptocurrencies is overshadowed by their digital stablecoin, which illustrates China’s search for increasing surveillance and performing citizen searches.
- Market corrections enable stable crypto and DeFi protocols with good fundamentals to grow stronger amid price uncertainty.
The state of cryptocurrencies in China is dismantled by the People’s Bank of China, whose goal is to discard autonomous financial systems that can hinder their control status. Decentralized Finance (DeFi), as a disruptive technology, proved money could flow freely without being overseen by gatekeepers. DeFi proposes a trust-less model in the new digital environment, outside the reach of regulatory bodies that leverages network trust to perform transactions. The TVL on DeFi protocols reached a record $80 billion, with only one network carrying the entire weight, as DeFi aims to seize more market fragments.
DeFi in Recovery Mode
By default, DeFi is the next step towards financial independence. Their increased popularity is due to peer’s ability to leverage their digital assets. As argued by ChainLink’s co-founder, Sergey Nazarov, DeFi is piquing the interest from “institutions and fintech and banks,” although the lack of regulations adds additional price volatility. Still, a technology which “wasn’t completely clear” 6 months ago became the most sought-after blockchain product after NFTs.
In contrast to the current market sentiment, which deteriorated as China enforced its cryptocurrency bylaws, DeFi protocols continue to appreciate. WuBlockchain illustrated that DeFi is steadily recovering, indicating a healthy price appraisal from leading protocols. The appreciation in the total DeFi market cap is possibly due to adjusted transaction fees, which are the lowest since 2020, and increased efforts to attract institutional capital.
The market value of DeFi has gradually recovered, in the past 24 hours, Uni rose more than 5.8%, Aave 16.6%, Compoud 14.2%, Snx 26.5%, Sushi 14.6%. However, affected by the news from the People's Bank of China, DeFi tokens also retraced some of their gains. pic.twitter.com/ccRQKHmqwc— Wu Blockchain (@WuBlockchain) July 6, 2021
China’s stance on cryptocurrencies has fluctuated over the years. However, in 2020, over 33,000 blockchain companies registered in the country. As encouraging as that sounds, regulatory measures are rapidly overcome in an industry characterized by fast pace innovation and governmental turmoils regarding crypto acceptance. Still, DeFi’s force was recognized even by strict Chinese regulators before the crypto plug was imminently pulled.
On the Flipside
- Early to market products cannot show their true potential because DeFi is still dependent on the price of digital-gold.
- Financial lobbying from central banks could bring more regulatory measures which beat the purpose of crypto’s security.
- The EU and the US plan on making “anonymous” wallets illegal, which is another sign of harsh regulation on the crypto industry.
An Unlimited Market Potential
DeFi’s potential sprawls in its immutability and transparency constituent. Blockchain and smart contracts have facilitated a secure network, whereas oracle networks related trusted data between centralized and decentralized ecosystems. In that regard, the industry’s potential is only taking shape, as protocols aim to bring new products to market.
AAVE, which outperformed the current market during Bitcoin’s sideways price momentum, announced Aave Pro to target institutional investor capital through private pools by segregating liquidity from regular users. Additionally, Compound Labs announced its “Treasury” division targeting the central bank’s direct customers by using USDC to earn a fixed 4% yearly interest. These new integrations and developments are aimed at increasing institutional adoption by creating byproducts that convey trust. In an interview with DailyCoin, Finoa’s CEO argued that DeFi is becoming a hot topic for institutional investors, mainly because it creates previously unknown financial streams.
Are Regulatory Laws Really Required?
DeFi gained momentum because blockchain ideologists and financially craving individuals saw a unique niche opportunity. Cryptocurrencies sprung from a similar demand; however, institutional interest made Bitcoin gain market acceptance.
In contrast to the underlying protocols and smart contracts, institutional players still seek a regulatory framework to ensure their actions are not intruding with governmental requirements. The Block emphasized that the Global DeFi Coalition, representing 350 crypto firms globally, forwarded 6 measures to the Financial Action Task Force to regulate the DeFi space.
A premature regulatory clampdown similar to that of China hinders the potential to change the outdated financial model, which is failing. The DeFi space is still new, and despite understanding the advantages they bring to the market, institutions are afraid to take action for now.