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SushiSwap Boosts USDT Demand in China While DCEP Testing Continues

2020.09.03 Matthew Lam

A weekly overview of blockchain and crypto news from China and Hong Kong

DeFi and DCEP were the top buzzwords in the Chinese crypto community this week. In the decentralized finance space, the rise of SushiSwap has led to strong USDT demand in the Chinese OTC market. Meanwhile, top Chinese state banks, such as the CCB and ICBC, explored integrating China's digital currency into their mobile applications and credit cards. These stories and more in this week's edition of OKEx Insights' China Market Watch.

SushiSwap pushing strong USDT demand in China

Tether (USDT) saw strong market demand in the Chinese over-the-counter market recently. The USDT OTC index by ChaiNext is calculated based on the over-the-counter price of USDT and the offshore RMB/USD exchange rate. The index reached 100.8 at one point on Sept. 1, meaning that USDT was traded at a premium, where 100 USDT equaled $100.8. At the time of writing, the index stands at $100.33.

Weekly value of USDT OTC Index. Source: ChaiNext

The USDT premium traded in the Chinese market is driven by the DeFi hype. SushiSwap, a fork of automated market maker Uniswap, is the hottest DeFi project among the Chinese community, with over $1.2 billion locked in, to date.

Key takeaways

  • The massive interest in SushiSwap can partly be explained by the "fear of missing out," especially due to limited understanding of the DeFi space. ARPA's DeFi survey, published in July, indicated that only 25% of the Chinese crypto community understood and used DeFi protocols such as lending.
  • Market participants should be mindful of the security risks in SushiSwap's unaudited smart contract.

Top Chinese state banks push for DCEP testing

The China Construction Bank and the Industrial and Commercial Bank of China — two of the top four Chinese state banks — are pushing to adopt the country's official digital currency system, the digital currency electronic payment, or DCEP.

On Aug. 28, the CCB launched a trial for an online digital currency wallet on its mobile application, enabling users to convert their fiat currencies into digital RMB. However, the bank disabled the digital wallet the next day, stressing that the testing does not imply the launch of DCEP. 

On the other hand, ICBC recently announced the issuance of digital credit cards, allowing users to activate digital currency services by linking the service to their cards. However, service activation does not mean that users can spend digital currencies now.

Key takeaways

  • The CCB is not the first Chinese bank to test the Chinese digital currency wallet. Another top-four Chinese state bank, the Agricultural bank, launched internal testing of a DCEP wallet in April.
  • The top four Chinese state banks — including the CCB, ICBC, the Agricultural Bank and Bank of China — reportedly tested DCEP for payments and transfers among their internal employees in August.
The interface of CCB digital currency wallet. Source: Sina Finance

Mining rigs maker Canaan Inc. reported net losses in Q2 2020

Canaan Inc., the first Bitcoin mining rig manufacturer listed on the Nasdaq stock exchange, released its unaudited financial results for Q2 2020.

According to the report, the company saw a net loss of 16.8 million RMB ($2.4 million) in Q2, an improvement from the 39.9 million RMB the company lost in the previous quarter. The mining rig manufacturer has improved its operational and sales performance in Q2, with gross profit improved by 17.1x and total computing power sold nearly tripled, at 2.6 million Thash/s.

Key takeaways

  • As the first Bitcoin mining rig manufacturer listed on the Nasdaq in November 2019, Canaan Inc.'s share price, currently at $2.01, has dropped 85% from its initial public offering price of $9.
  • Canaan Inc. has been reporting net losses since 2019, but the latest quarter has seen some improvements. CEO Zhang Nangeng attributed this to the enhancement of Canaan's research and development capabilities and the execution of the company's AI initiatives. 
  • Canaan has declined to forecast its business performance in the near future due to the uncertainties brought by COVID-19.

China Caixin Manufacturing PMI rose to a nine-year high

The stock market in China has rebounded this week. The Shanghai SE Composite and CSI 300 are currently trading at 3,406 and 4,844, as of press time, with a weekly rise of 2.25% and 2.93%, respectively. The SZSE Blockchain 50 index, meanwhile, stands at 4,130, with a weekly value change of 3.71%. In Hong Kong, the Hang Seng Index dropped 1.46% this week and currently stands at 25,120.

 Performance of Chinese and Hong Kong market indexes. Source: Trading Economics, Investing.com

The release of the China Caixin General Manufacturing Purchasing Managers' Index serves as a stimulus to the Chinese stock market this week. China Manufacturing PMI rose to 53.1 in August, a nine-year high since January 2011. This is fuelled by the post-COVID-19 economic recovery in the manufacturing sector that is witnessing rising export sales, new orders and production.

Key takeaways

  • The China Caixin manufacturing PMI measures the performance of the manufacturing sector in five pillars: new orders, output, employment, suppliers' delivery times and stock of items purchased.
  • The index currently stands at a nine-year-high due to post-COVID recovery efforts.

Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.

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