Our Man In Shanghai

This weekly roundup of news from Mainland China, Taiwan, and Hong Kong attempts to curate the industrys most important news, including influential projects, changes in the regulatory landscape, and enterprise blockchain integrations.

Limping out of 2021

Last week we thought we had hit rock bottom for Chinese exchanges, as Bitmart was on the unfortunate end of a $150m hack. This week, it was more of the same, as AscendEX lost $80m to a similar style of theftaffecting its Ethereum, BSC and Polygon hot wallet. On December 16, AscendEX released a security post-mortem detailing the attack:

An in-depth security audit identified the breach as the result of an exploit of hardware-level vulnerability from third-party infrastructure utilized by AscendEX. The infiltration was carried out by highly sophisticated perpetrators. We have been working closely with law enforcement as well as blockchain forensic firms to gain further knowledge on the incident.

Like Bitmart, AscendEX responded quickly, reassuring the community that their funds would be safe and accounted for, limiting the damage to its reputation. AscendEX, which was formerly known as BitMax, had done a relatively impressive job of attracting users around the globe and had just closed a $50 million Series B in November of 2021. That round included big names like Polychain Capital, Alameda Research, and Jump Capital, giving the exchange momentum to embrace a truly global growth strategy in the wake of suffocating Chinese regulations.

Hard times at Huobi?

On December 15, one of the longest-running exchanges restricted the accounts of millions of its Chinese users. Chinese users have until the end of December to access user-to-user OTC services, presumably so they have the option of cashing out prior to services being completely stopped. Most savvy users will likely find loopholes around regulations by withdrawing to on-chain wallets or exchanges with more flexible policies.

Prior to Binances incredible growth during the ICO boom of 2017, Huobi had been the largest exchange in the world by volume and liquidity. Focusing on Chinese users, it had tried to work with local regulators first with offices in Beijing, as well as special innovation zones in Hainan and other parts of China. This strategy proved to be short-sighted after regulators took a zero-tolerance approach to crypto exchanges earlier this year, forcing the exchange to slowly eliminate services for Chinese traders. Huobi had little room to hide, as its first-mover advantage made it too conspicuous to evade regulators.

Colin Wu wrote about the internal difficulties at Huobi, mentioning that COO Robin Zhu retired from management, while a number of other key members had left for other exchanges, including Bybit. One notable departure included the charismatic Head of Global Assets Ciara Sun. She had built her reputation in China on a combination of efficient business development and her trademark pictures with cats.

Some personal news

After more than 2 years at @HuobiGlobal, Im moving on to work on a new venture aimed at empowering the next generation of #Web3 and #metaverse apps.

More details to come but first, a quick thread

— Ciara Sun (@Crypto_Ciara) December 13, 2021

Still, there might be room for the former-top exchange to rebound, as two weeks ago Huobi declared its new regional headquarters would be located in Singapore. This is an interesting choice considering Binance revealed on December 13 that it had abandoned plans to launch an exchange in Singapore. Although the island nation is noted for being progressive with its regulation, the process for acquiring licenses can be quite stringent, especially for Binance which was already targeted for rule-breaking by many policymakers.

If Huobi is able to replace key management wisely, it could use its financial and strategic resources in Asia to begin taking back market share. Currently, Huobi sits fifth on FTXs volume monitor, roughly the size of KuCoin and Bybit, but far behind its old rival OKEx. OKEx has been the biggest gainer of recent weeks, taking significant volume from Huobi and becoming the clear number two exchange in the world.

Government officials in hot water

An investigation from a national security inspection found that 34 state-owned enterprises have been active in cryptocurrency mining using state resources, including equipment and networks. Unspecified punishments were handed down to 48 people, including 21 party and government officers. A further 70 individuals were Interviewed and warned for failing to provide ample education on the issue.

Adoption in Hong Kong

18% of Hong Kong Residents are active cryptocurrency investors and 13% are passive investors, according to a new survey released by Visa on December 9. This was second only to the United States among the markets reviewed. This is unsurprising considering the amount of physical cryptocurrency store locations and companies that are set up in the special administrative region. The Visa survey collected 6,430 online responses from August 25 to September 13 in regions including Argentina, Australia, Brazil, Germany, Hong Kong, South Africa, the United States and the United Kingdom.

This weekly roundup of news from Mainland China, Taiwan, and Hong Kong attempts to curate the industrys most important news, including influential projects, changes in the regulatory landscape, and enterprise blockchain integrations.

Bad news for Evergrande

Even after all the regulatory crackdowns, China isnt letting 2021 slip away without a few more blows to the crypto markets. On December 9, the news revealed that massive real estate developer Evergrande had defaulted on its interest payments, and was thus subject to a credit rating downgrade.

Subsequently, crypto markets dipped significantly, which will be worrying to investors who are already mumbling about jobless rates and new COVID variants. On the bright side, if the situation with Evergrande goes from bad to worse, financial regulators are going to have their hands full, giving them less time to focus on stamping out cryptocurrency as we approach the final month and a half of the lunar calendar.

Bitmart bouncing back

Bitmart was the unfortunate victim of a large hack on December 5, when $150m was taken from an Ethereum and BSC hot wallet. CEO Sheldon Xia quickly jumped on Twitter and announced that the hot wallets carry only a small portion of the assets on Bitmart and that the exchange was conducting a comprehensive security review.

1/4 In response to this incident, BitMart has completed initial security checks and identified affected assets. This security breach was mainly caused by a stolen private key that had two of our hot wallets compromised. Other assets with BitMart are safe and unharmed.

— Sheldon Xia (@sheldonbitmart) December 6, 2021

While many Tier 2 exchanges might have been slow to react, to Bitmarts credit, it communicated very frequently throughout. The following day, Xia returned to Twitter to announce that Bitmarts other assets were secure and that the exchange would compensate affected users from its own funds. For an established exchange, this amount of loss wouldnt be too crippling, especially if remaining users didnt all withdraw at once.

Immediately after the news, the Chinese community showed its resiliency. Rather than pile on misery, numerous voices spoke out in support, including competing exchanges like MEXC, KuCoin, and Coinex. Most of them left encouraging remarks on Twitter in addition to notices that they would work with Bitmart to identify and blacklist funds from the stolen account. Prominent investor Fenbushi Capital also voiced out their support, as did auditors Certik, Peckshield, and Hacken.

Trust is the cornerstone we cherish. We applauded your team's quick action to the incident, the high level of commitment. The proper response, as Hanukkah teaches, is not to curse the darkness but to light a candle. @BitMartExchange @sheldonbitmart https://t.co/qsquPg1IuL

— Fenbushi Capital (@fenbushi) December 6, 2021

Trending on social media

Sequoia Capital, one of the world’s largest venture capital firms with over $5 billion in AUM, overhauled its Twitter bio to crypto-native language on December 8.

Mainnet faucet. We help the daring buidl legendary DAOs from idea to token airdrop. LFG.

Shortly after, screenshots emerged of Sequoia Capital Chinas head stating the firm was all-in on crypto. Feng Bo, who is a managing partner at Dragonfly Capital, had applauded the move noting its progressive approach.

While its unlikely that a firm like Sequoia is actually all-in, its no secret that a lot of these large venture capital firms have enjoyed a lot of success through crypto-related investments in recent times. Perhaps the bigger question is which user was leaking screenshots from this seemingly private group chat for large Chinese whales.

Despite all the fun, Sequoia changed its Twitter bio back the next day.

Also very popular on Chinese crypto social media was the eloquent Brian Brooks from BitFury. Clips of his panel in the US Congress hearing on digital assets made the rounds, particularly as he explained the differences between Web 1.0, 2.0, and 3.0. The Chinese community seemed to appreciate his well-spoken and concise nature when dealing with the featureless politicians.

For a bit of light humor, an image was circulating of CZ’s famous Tweet “If you can’t hold, you won’t be rich” stuck to the back of a Meituan food delivery vehicle. Meituan delivery is often memed as a low-paying form of employment that the crypto community members could be forced to return to when the industry is suffering, similar to McDonald’s in the west. It also pokes fun at a famous orange vehicle driven by an early Bitcoin whale in China that has the same message on the side door.

Mad about the Metaverse

Metaverse-related projects and events have been appearing left, right and center, all over China. However, its not clear whether these are actually focused on building a Metaverse, or just a sneaky way for crypto projects to disguise themselves as something else to avoid the wrath of regulators.

Chinas Central Bank has caught on to this trend and are now monitoring the Metaverse and NFT space. Guidance or policies from the Central Bank are likely to resemble existing policies towards digital currencies, meaning strict regulations with little room for interpretation.

Speaking at a financial security summit, the director of Anti-Money Laundering at the Peoples Bank of China mentioned the Metaverse and NFTs when discussing the need to strengthen digital transaction monitoring. He also noted the need for regulatory sandboxes, a popular idea but one that would be unlikely to give much flexibility for truly decentralized products.

These rumblings didnt stop Peoples Daily from adding metaverse to a list of 2021s Top Ten trending words on December 8. Most of the other words were related to societal issues such as overworked students or young adults not attempting to compete and succeed. Metaverse stood out among the other words as one of the only ones related to technology and innovation.

Over on the island in Hong Kong, Adrian Cheng, CEO of Hong Kong real estate giant New World Development, announced he was diving in by acquiring a prime piece of real estate in The Sandbox. Cheng announced that 10 different companies would be used to develop the virtual land, building up an innovation hub to show off developments from the areas of Hong Kong, Macau, and various Chinese cities located nearby.

6 Questions for Mati Greenspan of Quantum Economics

December 5, 2021

Shanghai Man: CZ is wealthiest Chinese person with $90B, NFT yachts, and MonoX hacked

December 2, 2021

Despite the bad rap, NFTs can be a force for good

December 2, 2021

Lines in the sand: US Congress is bringing partisan politics to crypto

November 29, 2021

6 Questions for Lyn Alden Schwartzer of Lyn Alden Investment Strategy

November 28, 2021

This weekly roundup of news from Mainland China, Taiwan, and Hong Kong attempts to curate the industrys most important news, including influential projects, changes in the regulatory landscape, and enterprise blockchain integrations.

It was a quiet week in the mainland as much of the Chinese crypto community was either lying low, off in Lisbon, or recovering from a week-long hangover following the Shanghai Blockchain Week that concluded over last weekend.

The largest blockchain-related news was the $130 million hack of DeFi platform Boy X Highspeed, or BXH for short. BXH is a decentralized exchange running on BSC, Ethereum, HECO, and OKEx.

We are sorry to announce that BXH was attacked on #BinanceChain. Other chains assets are safe.
We are cooperating with BSC and Peckshield to follow up and trace.#BXH @HECO_Chain @BinanceChain @AnyswapNetwork @O3Swap @renprotocol @cz_binance @peckshield pic.twitter.com/jNo8C53DM0

— BXH (@BXH_Blockchain) October 30, 2021

Even more peculiar than the platforms name itself is the nature of the hack. It appears that the attacker somehow gained access to the admin key, which leads to plenty of questions about the security and decentralization of the project.

Based on this and the fact that the Chinese project claims to have enlisted the help of Chinese law enforcement, there are suspicions it could be the result of an inside job. BXH has offered a large bounty of up to $10 million for those who can help return the funds.

Huobi not giving up on moon mission

Volumes on Huobi continued to drop, at times falling behind Coinbase Pro and Korean exchange Upbit. Last week Huobi was roughly 60% of the volume on FTX, but it sat on Wednesday at around 40%. Its also around one-third the volume of major competitor OKEx. Huobi is now less than two months away from its own deadline to close accounts belonging to Chinese users. Huobi will need to dramatically reshuffle to win back the market share it has slowly lost to exchanges with fewer regulatory risks.

In a strong marketing push, Huobi has announced a contest to send one user into space onboard a private spacecraft. Not all the details were given, but this announcement comes as the exchange celebrates its eigth anniversary, making it one of the older trading institutions in the sector.

PlatOn claims a partnership with Google Cloud

One of Chinas more low-key public chains announced on Twitter it is partnering with the large cloud service provider Google Cloud:

“We will work together to provide basic application technology and enterprise-level platform services for global users, as well as the research and development in blockchain technology, privacy protection, and ecosystem building.”

The announcement didnt gain much attention, as its unclear how much actual reciprocation is happening from Google Clouds end. Despite the announcement, the token was down around 6% on Thursday.

Mining in Southeast Asia

The Southeast Asia country of Laos is exploring cryptocurrency mining in the aftermath of Chinas mining crackdown. A pilot project between the government and the private sector is expected to bring in roughly $194 million towards the countrys total domestic revenue projected for 2022.

Laos shares a small southern border with Chinas Yunnan province, an area where a lot of miners are still leaving following the announcement from the Energy Administration of Yunnan in June that clarified the national policy would apply to Yunnan itself.

Contacts report that though a lot of miners have left China already, a portion has been laying low, waiting to see if the regulatory environment changes or a better opportunity presents itself. Countries like Laos are interesting potential destinations as regulations are still quite ambiguous. Traditionally, Southeast Asia has been home to a lot of Chinas “offshore” businesses, such as gambling or casino games seeking to avoid regulations or law enforcement.

CBDC gaining traction

Chinas central bank is once again boasting about the traction of its centralized digital currency, the e-CNY. Announcements at Hong Kongs Fintech week revealed that now more than 140 million people have access to accounts, with over 62 billion transactions processed.

This is a large jump from the previous year and should come as little surprise considering the amount of trial programs that have been rolled out around the country. Many franchise restaurants and retailers are already advertising e-CNY at point of sale devices throughout the country.

It seems likely that number will continue to rise, challenging private apps Alipay and WeChat, both of which claim over 1 billion users each. Supplanting those two will be a difficult task, mainly due to the feature-rich nature of the super-apps. However, the central bank currency surely has a lot more patience and the advantage of regulatory policy-makers that can tilt the market in its favor.

This weekly roundup of news from Mainland China, Taiwan, and Hong Kong attempts to curate the industrys most important news, including influential projects, changes in the regulatory landscape, and enterprise blockchain integrations.

This week, Wanxiang Blockchain hosted its annual Shanghai Blockchain Week, an event that usually brings together the government, enterprise, academic and degen side of the industry for a big celebration of how far decentralized technology has come.

This year was a lot different, as the degens have been pushed out of the limelight by the recent spate of regulation. That didnt stop them from having their private parties, but it was a big change from previous years where nearly every major project, VC, exchange, and media group hosted glitzy all-you-can-eat-and-drink events at landmark venues all over Shanghai.

For the main event, Ethereum cofounder Vitalik Buterin attended via video, giving his usual profound insights into the development of Ethereum. Much like the speeches he gave recently at other Ethereum events, he talked about how Ethereum can evolve through Layer-two scaling.

Layer-two projects, such as Near, Avalanche, Polygon and Arbitrum have spent a lot of time cultivating Chinese-language ecosystems, hoping to tap into a large user population that doesnt have as many ideological qualms around decentralization as western counterparts. Buterin also joined a panel with two others who have had success raising interest in China, Juan Benet of Filecoin and Dominik Williams of Dfinity.

Playing hard to get

A few big events were available for the evening crowds, but most of them were invite-only attendance. One event titled Degen Night was causing a stir because the organizers purposely left out any mention of where it was located or who they were. People who were invited were contacted anonymously and told to keep the location secret. The poster did specify that OHM, SPELL, TIME, and KLIMA communities were likely to be well represented.

The MAODAO, a Chinese backed community of play-to-earn gamers and NFT fans, also held an exclusive event. Like the other events, the DAO waited till the last day to reveal the location, and only in the Discord channel. Owning a Ready Player Cat NFT was stated to be a requirement for entrance, but no word on how strictly that was enforced.

In general, the week didnt feel like as much of an old friends gathering as previous years. Its hard to tell how much of that was due to regulations, and how much was a result of the strong market conditions diluting the scene with newer players.

Ranking the exchanges

Huobi slipped further behind FTX this week, now sitting at only around 60% of the volume. Last month, Huobi announced that they would be closing Chinese accounts at the end of 2021, potentially cutting off a large portion of its active user base.

Judging from the volumes, OKEx and FTX seem to be benefiting the most from this. Huobis HT token has had a rough 2021 as well, now trading at less than $10, a steep drop from the May peak at $35.

Another strong performer is Gate.io, an exchange with roots in China that is threatening to shed its Tier-2 status. On Thursday, it was showing over $7.5 billion in 24-hour volume, making it on par with leading Korean exchange Upbit, and seventh overall. Fans of memecoins will rejoice to see that of that volume, around 20% came from the leading duo of Shiba Inu and Dogecoin.

Spilling into Hong Kong

Hong Kong is apparently becoming a hotbed of OTC trading desks, according to an article by Rachel Wolfson on Cointelegraph. Wolfson described how many of these have their own physical locations and use case that to build trust with users, including Chinese tourists.

The one barrier standing in front of this booming industry is an upcoming regulatory framework, which is currently being mulled over. If Hong Kong is to follow the path Beijing took earlier this year, it could have a major impact on the citys crypto industry. That would likely give an even bigger boost to Singapore, where many major crypto players have already taken regulatory refuge.

This weekly roundup of news from Mainland China, Taiwan, and Hong Kong attempts to curate the industrys most important news, including influential projects, changes in the regulatory landscape, and enterprise blockchain integrations.

This week China is back to work after its week-long national day celebrations, an event that is always filled with flag-waving, military parades and enthusiastic nationalism. This years version was intensified by the recent homecoming of Huawei executive Meng Wanzhou after three years of detention in Canada, as well as heightened tensions in the Taiwan Strait. Government regulators have spent the better part of the last half-year wiping out the cryptocurrency industry in the mainland, a topic that has given the Shanghai Man plenty of topics to discuss in this weekly column.

Limited access to markets

On Wednesday, Binance took a step towards compliance by announcing it would be closing P2P for RMB markets. According to the announcement on Binances website, the change will happen on December 31, 2021. Meanwhile, it will check for users from the mainland of China and switch their accounts to a withdraw-only mode. At the same time, users will only be able to withdraw, close positions, and other essential functions. Binance will notify corresponding users by email 7 days before the account switch.

The news was not well-received by the remaining retail holders, who feel that fewer and fewer reliable off-ramps are available without resorting to more drastic measures such as offshore accounts. Binance had been one of the most popular P2P markets, due largely to the reputation of the exchange, its liquidity, and Binances geographic distance from Beijing. Binance has always maintained that its website was blocked in China and it doesnt have an exchange business presence here, therefore it was exempt from mainland regulatory policy.

Theres no denying that a lack of P2P fiat options will make investing in crypto a lot less comfortable for Chinese citizens living in mainland China. With the eCNY central bank digital currency right around the corner, tighter fiat regulations might make it hard to move large amounts of fiat in and out of the crypto markets. On the other hand, many people are less concerned, knowing that OTC markets will spring up whenever there is an opportunity to provide an in-demand service. Technology always has a way of developing where it is needed the most.

Reading between the lines

The move seems quite severe on paper, but there are still a few grey areas that need to be examined. Its no secret that going into this year, millions of Chinese users were registered on top exchanges and many of them were active traders and large holders. Some of them will likely be deterred by recent government policies and exchange rules, and reduce their exposure to the asset class. Others are actively being funneled into DeFi, as evident by the rising on-chain trading volumes coming from China.

Other users will simply elect to wait, especially considering the rapidly-changing nature of national policies. One common belief is that exchanges that elect to self-regulate may not actually enforce this policy very strictly at first. This is supported by the lack of clarity on how overseas Chinese users should be handled. Users may be able to circumvent rules altogether by supplying proof of international residency or alternative forms of ID. The silver lining here is that any sell pressure caused by uncertainty or fear from Chinese investors will be dampened by a long transition period of compliance.

For a company that operates completely outside of China, its very difficult for regulators to enforce policies, especially if the exchange is claiming to self-regulate, by banning IPs, and not accepting new Chinese registrations. This is the strategy that exchanges such as OKEx and Gate.io seem to be following, as both of these large platforms with Chinese roots announced that they were already fully compliant, didnt accept Chinese users, and as a result wouldnt be making any drastic changes.

Gate announced its policy without emphasizing the removal of existing mainland Chinese users. https://t.co/q3yYLMX0Wp

— Wu Blockchain (@WuBlockchain) October 13, 2021

A prominent social media Influencer on Weibo wrote:

“The content of this announcement is a bit strange. I think the exchange will conduct a self-check and try to discover the remaining Chinese users on the platform, but in the case after the self-check the exchange announces there are no Chinese users, the exchange will just leave them there.”

This post was later deleted on Weibo. Currently, all topics related to Binance and other exchanges are censored by social media apps like WeChat.

Waning impact

Perhaps the most surprising takeaway from all this was the market indifference to the news. Previous announcements of this magnitude have had very pronounced effects on the market price. On Wednesday, following the announcement by Binance, the BTC price dipped briefly before bouncing back to over $58,000 the following day.

What this shows it that the market is putting less weight on the impact of news coming out of China, instead focusing on narratives like the hoped-for upcoming ETF approvals in the US and Vladimir Putins surprise admission about cryptocurrencies. Investors can take solace in the fact that with more growth and decentralization, the market risk is more diversified.

The right to enforce

On October 11, the financial magazine Caijing put out a story discussing the enforcement of the recent crackdown on cryptocurrencies. The main points were that the recent announcements from the Central Bank were merely guidance and that actual judicial interpretation and enforcement needed to come from the public prosecution authorities in the court system. The article implied that judicial bodies were now conducting research into the legality of mining and cryptocurrency businesses, and that this could spell trouble for rule breakers. Those who had currently succeeded in skirting the rules might not be out of hot water, yet.

This weekly roundup of news from Mainland China, Taiwan, and Hong Kong attempts to curate the industrys most important news, including influential projects, changes in the regulatory landscape, and enterprise blockchain integrations.

Well, it finally happened. The regulation-driven crypto-apocalypse in China. They started by clamping down on miners earlier this summer before finally tightening the screws on exchanges. This week, the final nail in the coffin came with even more rules from the PBoC that resulted in many platforms announcing they could no longer accept Chinese users.

Banned yet again

The new rules handed down by the Peoples Bank of China made things incredibly clear for businesses from a legal standpoint. One of the main points was that cryptocurrency-related business activities are illegal, a ruling that cast doubt over the long list of projects, exchanges, and financial service providers in the country.

Many projects responded instantly by eliminating WeChat communities and even internal messaging groups on domestic networks, preferring to operate through VPNs and more privacy-focused chat apps. Leading exchange Huobi, which sits third on the global leaderboard for volume, announced they would be permanently closing down Chinese user accounts at the end of the year.

If true, this would be a massive blow to the exchange that has long-serviced the Chinese community with a high standard of service that includes deep liquidity, a wide range of assets, and few security blemishes to speak of. Experienced Chinese investors might still be skeptical that Huobi would make such a drastic change, as announcements and policies can change very quickly in the Chinese world of crackdowns and political posturing.

Trouble for overseas players

Perhaps the most alarming point of the PBoC announcement was that overseas cryptocurrency exchanges providing services to Chinese residents are also deemed to be illegal financial activities. Additionally, it stated that there are legal risks to participating in cryptocurrency investment transactions. This sparked some fear among employees of crypto companies who suddenly worried they might be the next target of crackdowns by law enforcement.

Binance was quick to point out that the domain Binance.com has been blocked in China since 2017, excluding it from the regulatory discussion. It also announced it would no longer accept new registrations from Chinese users, but said nothing about existing accounts. BitMart, another exchange with ties to China, also announced that on November 30, it would be closing accounts from users in the Chinese mainland. Biki, an even smaller exchange, announced it would be winding up exchange operations altogether.

Many people are asking, China has banned Bitcoin 19 times, what's the difference this time? Fine, this lawyer explained in detail the 5 differences. Google Translate is required to read. https://t.co/WEMq99QCU1

— Wu Blockchain (@WuBlockchain) September 30, 2021

For smaller exchanges, the risks of operating are quite high, especially as many have diversified business models that include investment, mining, or other financial services. Smaller CeFi exchanges in this space may also be feeling increasingly crowded out by the rapid growth of top CeFi platforms, as well as the widespread adoption of decentralized exchanges. Closing doors on the exchanges may not mean exiting the industry altogether, but simply abandoning a high-risk and underperforming business line.

So what is left for Chinese traders?

Individual users are still in a gray area as the announcement didnt strictly say that the possession of cryptocurrencies was illegal. This seems unlikely as the general trend is to try to protect the citizens by targeting the businesses, a move weve seen in a number of different industry verticals this year, including education and entertainment.

Another area that isnt clear is Chinese users who live abroad. In addition to the large population of overseas Chinese citizens, many are still able to fake their location using VPNs. Assuming that these users are still able to get past IP bans, it could leave a possible route for more technically savvy holders to continue trading on CeFi platforms.

Exchanges without any operations in China might see this as an opportunity, as regulators would have very little recourse against them. At this stage, it seems like China’s regulators might be successful in discouraging much of the smaller retail cryptocurrency activity. However, the large players are already overseas or finding ways to get around these new barriers. If they’ve been in the space awhile, they are more than familiar with the ebbs and flows of regulations.

No answer for decentralization

The biggest benefactor in the short term may be DeFi protocols. The one-two punch of China cracking down and liquidity rewards on DYDX caused a massive spike in adoption for the StarkWare-based derivatives platform. According to data on Similarweb, China was the top region to access the site, with over 10% of the market share. Users with VPNs from China likely accounted for even more. It’s still not clear if this will be a long-term solution, or if the massive increase is more speculative in search of earning the DYDX token as a reward.

Toeing the party line

Seeing an opportunity to display their best behavior, eCommerce platform Alibaba announced the platform could no longer be used for the sale of cryptocurrency mining machines. This stance is not surprising, considering the scrutiny the company is already under by financial regulators. The organization is being restructured after their p2p lending models sparked a high-profile row between founder Jack Ma and financial oversight bodies.

This weekly roundup of news from Mainland China, Taiwan, and Hong Kong attempts to curate the industrys most important news, including influential projects, changes in the regulatory landscape, and enterprise blockchain integrations.

Regulatory noise

In this weeks column, the Man in Shanghai is determined to squeeze all of the regulatory noise into one section, so as not to waste too much of your time. Lets begin.

It wasnt much, just a warning from the Hebei Provincial government to announce it would put an end to cryptocurrency mining in the region. This is largely a non-story, since its essentially just restating a national level policy that went into effect months ago. Hebei was never much of a mining stronghold anyway, so the announcement is more procedural than anything else. Mining operations will continue to move overseas while China goes through its unified push to become carbon neutral.

For reference, China has 23 provinces, and close to half have already restated their commitment to the national policy by announcing that cryptocurrency mining would not be tolerated.

The Securities Times, a state-owned publication, ran a story warning the public about the bubble surrounding NFTs. This Shenzhen-based publication questioned the real economic value of NFTs, a topic that many of us have all wondered about at times. Still, the suspicion hasn’t stopped the trend from spilling into less mainstream art circles, where NFT and metaverse-related events are becoming more and more popular.

Selling shovels in a gold rush

While mining in China might be difficult, manufacturing mining machines is continuing to be quite profitable. Canaan, one of the worlds largest manufacturers of cryptocurrency mining hardware, announced its highest quarterly profits to date. The companys Q2 financials showed that the company recorded over about $167.5 million in total net revenue. This was likely driven by the sharp increase in prices this spring, leading to aggressive expansion of mining facilities across the world. The next round of quarterly financials will tell a deeper story, as investors will learn how badly aggressive regulations by China have hurt the industry. Zhang Nangeng, Chairman and Chief Executive Officer of Canaan said:

We delivered a remarkable performance in the second quarter of 2021. Despite unexpected regulatory policy dynamics and Bitcoin price volatility, we achieved record-high topline results as we delivered a robust 5.9 million Thash/s of computing power to our clients.

Rounding up the trading space

Volume remained mostly flat on exchanges like Huobi and OKEx, as it has for the last 12 weeks. The last major spike came during the sell-off in early May, around the time Chinese regulators began their crackdown. Over this time, FTX has seen a strong increase in volume, suggesting that some Chinese users might be connecting to exchanges that havent traditionally been a dominant player in the Chinese trading space.

FIL remains popular on Huobi, finishing in the top five on Thursdays 24-hr volume chart. This token has maintained popularity among traders in China, despite being about 50% below its all-time high from earlier this year. ADA, SOL, and DOT were assets that showed up high on OKEx volume charts, which mirrored global volume distributions. Speaking of Solana, Chinese users on Weibo reacted strongly to the network going offline on Wednesday, with some criticizing the networks decentralization. Discussion broke out about whether Ethereums early technical issues were comparable to this event, proving that Solana and Ethereum maxis will disagree in any culture, regardless of the language.

Unleashing the eCNY

The central bank digital currency created by the Chinese federal bank is now being pushed out even further, as popular app Meituan is offering roughly $1.50 in eCNY (digital yuan) to users who open a digital wallet and use its services.

Meituan is most widely known for its bright yellow food delivery service and shared bikes, which can be found on most city streets. The campaign is meant to encourage low-carbon living, and is open to nine pilot cities including Beijing, Shanghai, Shenzhen and Chengdu.

The eCNY, which originally was positioned as more of an institutional remittance tool for commercial banks, is now aggressively being pushed towards retail users. Already, large franchises like McDonalds and Zara display eCNY payment signs at point-of-sale counters across the country. The current digital payment space is dominated by WeChat Pay and Alipay, but those two will likely have a hard time holding control of market share if the central government is interested in forcing eCNY into competing applications.

Ironically, Meituan has a special role in Chinese cryptocurrency meme culture. Token holders often joke they will be forced to work in food delivery whenever the market crashes, leading to the meme below.

At the end of March, Meituan revealed it had around 570 million users. Other financial apps, including banking apps, have already integrated the wallet services into their products.