How MakerDAO flourishes in China where the idea of decentralization is slow to catch on

In China, where people often favor practicality and reputation over decentralization, decentralized protocol MakerDAO still draws a big crowd.

As Maker’s second-largest user base, China contributes 10% of MakerDAO’s website traffic in 2019, where most of the users go to open collateralized debt positions (CDP, now called Vault), according to MakerDAO’s China lead Chao Pan. In December, MakerDAO also received $27.5 million from venture firms Dragonfly Capital and Paradigm to boost its presence in China. 

However, Pan noted that MakerDAO and even the concept of decentralized finance (DeFi) it champions may face culture shock in the Eastern world. 

“When DeFi started to gain popularity and became a buzzword in the Eastern blockchain community, people came up with a contrasting yet a bit paradoxical concept, CeFi, ie., Centralized Finance," said Pan. 

As its name suggests, Centralized Finance copies the service model from traditional finance and only changes the assets they support from equities, debts, or gold to cryptocurrencies. In the U.S., cryptocurrency lenders like BlockFi and Celsius all operate in a centralized manner. Firms like Renrenbit and Babel Finance are their Chinese equivalents. The former recently disclosed their 2019 unaudited financials, stating that it generated $2 million revenue over the past year, while the latter is said to have issued around $72 million worth of cryptocurrency-backed loans in 2019, according to Pan.  

“It is fair to say the East favors practicality and well-established reputation over decentralization and privacy with regard to finance in general,” said Pan

Growing DeFi appetite

Even still, DeFi has already grasped a substantial market share in China and it is riding an upward swing in recent months. imToken, one of the most popular Ethereum wallets, reached over 10 million downloads so far, with 8 million of which from China alone. 

The company behind imToken also partnered with a Compound-like decentralized lending protocol Lendf.Me, which has aggregated around $7.8 million in locked value within the four months since it was founded. As a point of reference, bZx currently is the fifth largest DeFi lending protocol on DeFi Pulse, and it has a locked value of $7 million. 

MakerDAO’s strategies

Instead of only promoting the idea of decentralization, Maker is advertising Dai as a stable and accessible alternative to other digital assets to its Chinese audience, especially those who have little exposure to DeFi.  

At the end of 2018, the foundation released a Chinese version of CDP to make Dai more accessible to Chinese speakers. Its early 2019 campaign with imToken brought around 12,000 new users as ETH investors looking to hedge their risks during the bear market. Recently, it also partnered with another China-based wallet provider MYKEY for two additional campaigns targeting users unfamiliar with DeFi, which together attracted 3,000 participants. 

As MakerDAO became more serious about China, the company also hired an additional team member in China. Previously, Pan was the only person on the MakerDAO team who focused on the Chinese market. However, the foundation recently recruited another China-based employee. 

Finally, the popularity of stablecoin Tether in China may also give Dai a boost, Pan pointed out. Tether's centralized reserve structure exposes investors to default risks. However, Chinese investors still prefer it over other stablecoins for its high liquidity. The easy conversion between Tether and Dai would encourage investors to convert Tether to Dai for its greater stability. 

“In the long run, I think there will be a tripartite confrontation situation for the stablecoin market, USDC prevails in the regulated stablecoin field, USDT continues to play a crucial role in the offshore market, while Dai finds its unique position as the unbiased, endogenous currency in the crypto sphere,” said Pan.