The control conundrum: DeFi with Chinese characteristics
China’s approach to central bank digital currency offers clues to how it may build a unique version of decentralized finance.
China’s adoption of decentralized finance (DeFi) is likely to take a different path from many other economies as authorities seeks to exert control over platforms and technologies that are typically designed to resist such efforts.
Industry experts say that China’s approach to central bank digital currency (CBDC) offers clues to how DeFi will develop in the country.
DeFi, which describes a class of cryptocurrency platforms built on top of smart contract-enriched blockchains (primarily the Ethereum network) that fulfil specific financial functions determined by the smart contracts’ underlying code, is one of the biggest stories in cryptocurrency of the last two years.
DeFi protocols include decentralized exchanges and lending platforms, which can operate autonomously.
China has emerged as an important player. In its 2021 ‘Geography of cryptocurrency’ report, blockchain data platform Chainalysis ranked China fourth for overall DeFi adoption. Almost half of the $256 billion of cryptocurrency received in China between July 2020 and June 2021 went to DeFi protocols.