The Chinese government doesn't officially allow its people to buy cryptocurrencies with cash, and the country is working on a digital version of its yuan that would be closely controlled by authorities.
But guess what apparently is allowed? Decentralized finance, known as DeFi, encompassing the fast-growing realm of mostly autonomous, blockchain-based software projects designed to automatically lend and exchange cryptocurrencies, and maybe someday replace banks.
Conflux, a blockchain startup backed by the city of Shanghai, announced Wednesday it has formed a strategic partnership with the cryptocurrency exchange OKEx's decentralized public blockchain, OKExChain, to help DeFi projects enter the Chinese market. Conflux claims to be the only "public, permissionless" blockchain endorsed by the government. The term "permissionless" indicates that control over the network is decentralized.
The partnership will allow Conflux to "wrap" tokens from selected DeFi projects with its native token CFX, which was recently listed on OKEx. In crypto industry jargon, "wrapping" a token means it's retrofitted into a new token that can move over another blockchain, similar to the way a truck trailer might be loaded onto a railroad car.
The Conflux project could help these emerging DeFi projects to receive "full support" of the OKExChain ecosystem, a representative from Conflux told CoinDesk. OKEx, the exchange behind OKExChain, is one of the so-called Big Three cryptocurrency exchanges closely linked to the Chinese market, including Binance and Huobi.
“Conflux is the only regulatory-compliant public, permissionless chain in China because we specifically did not have a public token sale, which has allowed us to remain compliant and in good standing within China,” a company representative told CoinDesk. DeFi projects “don’t necessarily need Conflux to enter the Asia market, but Conflux-wrapped assets are considered regulator-friendly in China, so we’re offering a compliant way for projects to list on a public exchange in China.”
As part of the announcement, Conflux revealed eight new DeFi projects in the first cohort of its program, all of which will have their tokens wrapped to CFX and can move freely between Conflux and OKExChain. These "wrapped tokens" are backed by an equal amount of CFX, the news release said.
The company told CoinDesk that even though initial coin offerings (ICOs) and fiat-to-crypto trading are not allowed in China, crypto-to-crypto trading is not banned, meaning that Conflux can “remain compliant and serve as a point of entry for projects interested in entering the local market.”
“The Chinese government is mainly trying to protect its citizens while seeking to better understand the value of public blockchain technology,” the company said.
Little known to the Western world, Conflux has received considerable attention in China both from the state and media outlets. The company recently received millions dollars of grant money from the Shanghai Science and Technology Committee and Xuhui District government, part of Shanghai’s municipal government.
A video clip on state-owned satellite TV station Dragon Television described the Conflux blockchain as having been “developed by Shanghai.” The report went on to note that the network's performance has exceeded that of Bitcoin and Ethereum in terms of transactions per second and transaction confirmation times.
On Weibo, China’s equivalent to Twitter, some users even called CFX the “Shanghai token” due to the startup’s close relationship with the Shanghai government.
"It's very encouraging to see such high-quality blockchain projects like Conflux Network that are committed to transparency, decentralization, interoperability, and regulatory compliance partnering with OKExChain," Jay Hao, CEO of OKEx, told CoinDesk through a representative. "These are the qualities that will enable strong and sustainable growth moving forward and attract developer talent from the wider ecosystem."
UPDATE (March 24, 2021, 14:25 UTC): In an earlier version of this article, CoinDesk reported that the eight DeFi tokens selected by Conflux would be wrapped to CFX tokens and traded on OKEx, based on a company press release. After publication, representatives from OKEx and Conflux clarified that the DeFi tokens would not necessarily be listed for trading on OKEx, but that the selected DeFi tokens can move freely between Conflux and OKExChain.
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