A DeFi “super-network” in China attracts Western investment

As the DeFi industry begins to take flight around the world, don’t sleep on China.

The Beijing-based dForce Foundation today announced that it has completed a $1.5 million funding round led by the Austin Texas-based crypto venture fund Multicoin Capital. The round also saw participation from the investment arm of the Huobi exchange, Huobi Capital, and the Hong Kong-based investment banking firm CMB International. 

The funds, according to dForce, will help grow its team and deploy new protocols that aim to expand what's possible in decentralized finance (DeFi). And it has some very ambitious goals.

In a sense, dForce aims to become the WeChat of DeFi. Just like WeChat functions as a “super-app” that connects different protocols and products, dForce plans to integrate DeFi around the globe as a “super-network.”

The DeFi-focused foundation has so far deployed a stack of protocols and projects, such as a synthetic indexed stablecoin pegged to a basket of fiat stablecoins called USDx. The foundation has also introduced a fiat-stablecoin lending protocol called Lendf.Me, which according to the dForce, already boasts close to $30 million in assets and $10 million in loans outstanding. 

The foundation is also set to launch new protocols for 2020 that earn yields in pooled assets and interest on savings accounts.

How does it all work? dForce founder Mindao Yao explained in an interview with Decrypt: ”Unlike other synthetic assets that primarily rely on price references without any underlying assets, our synthetic stablecoin is 100% collateralized with constituent stablecoins,” he said.

Those constituent stablecoins include Circle’s USD Coin (USDC), TrustToken’s TrueUSD, Paxos (PAX), and MakerDao’s DAI, which all form the dForce USDx basket of stablecoins. This “is much more scalable, and doesn’t rely on initial liquidity bootstrapping,” Mindao said.

Since the synthetic stablecoin on-chain reserves “inherits both decentralized stablecoins and regulated fiat-stablecoins,” it avoids “the burden or overhead of running a regulated centralized stablecoin network,” according to Mindao. And that means that if regulators come down on one stablecoin in the basket, dForce can quickly remove it and replace it with another one.

This keeps its protocol “highly programmable and composable” for introducing financial primitives like system-wide interest rates, and helps preserve “the benefits of high scalability and efficient price pegs (of regulated stablecoins),” he said.

As for any regulatory pressure that might come down on the DeFi industry, Mindao is confident that dForce is well positioned to address it. “The current regulatory scrutiny in most places are focused on fiat/user interface layers,” he said. “As a protocol, similar to Maker’s MCD protocol, our asset protocol sits below the user interface layer, and as such are less exposed to regulatory scrutiny.”

Mindao conceded, however, that DeFi in general does face considerable regulatory uncertainty. It is “very much an uncharted territory for regulatory oversight,” he said. “Open Finance, or DeFi, are barely able to penetrate traditional financial infrastructure,” said the dForce founder. And, for now, its efforts will remain focused on the protocol layer, “to build a more fundamental primitive financial layer that sits below the regulatory layer,” he said.

A DeFi super-network

While based in China, with a strong focus on users in the Eastern part of the world, Mindao has his sights on unifying the global DeFi industry. But there are differences in the types of users in both the East and West, he said.

“Western users are more prone to ideological labels,” like an obsession with full decentralization and on-chain governance, he said. While Eastern users “are drawn by usability, efficiences, and competitive advantages.”

Nevertheless, Mindao sees users around the world converging “on several mega protocols,” such as in assets, lending, and decentralized exchanges. “The East will grow disproportional to Western markets as more players, including CeFi [centralized finance] and exchanges, wake up to DeFi calls,” he said.

The potential is massive, according to the Chinese entrepreneur. DeFi, as it matures, promises the world “a whole new open financial infrastructure without borders, and a new set of financial primitives without any brick-and-mortars,” said Mindao. 

And, if successful, with a Chinese super-network in dForce that connects it all.