Can Censorship-Resistant DeFi Bypass China Crackdown?

While these directives may seem intimidating and have significantly limited the ability of Chinese residents and businesses to benefit from the fast-evolving crypto economy, there’s no denying that the world is changing rapidly. With this ongoing digital transformation, the centralized governments of the world feel threatened. That’s probably a major reason why the Chinese government and other authorities have tried to discourage and prevent the use of permissionless crypto-assets. 

If centralized governments continue to allow the growth of a decentralized finance or DeFi economy, then they could lose their grip on power. Since crypto is truly empowering for individual users, China’s government will try to do everything and anything in its power to stop the widespread use and adoption of decentralized virtual currencies like Bitcoin (BTC). 

Chinese Residents Are Already Bypassing Government-led Censorship 

However, Chinese citizens and a large expat population have already been using different software apps to bypass the Great Firewall of China. Even though the restrictive firewall tries to prevent people and organizations from accessing important services offered by tech giants like Google and Facebook (now Meta), among others, consumers have been downloading advanced VPN apps such as ExpressVPN or NordVPN. By installing these services, people can access most websites that are not available through a regular Internet connection in China.

It now seems that DeFi apps and platforms like Portal are a natural extension of permissionless and uncensorable software apps that will form a critical part of Web 3.0, which is an evolving set of standards that will become a foundation for the Internet of the future.

As explained by its developers, Portal is a self-hosted Layer-2 wallet and “true” cross-chain DEX (or non-custodial exchange) built on Bitcoin that allows atomic swaps between Bitcoin or BTC and other crypto-assets in a quick, secure, and private manner. In order to support the development of their project, the Portal team acquired $8.5 million in the capital earlier this year. The proceeds will be used to create a self-sovereign and uncensorable DeFi solution right on top of the Bitcoin protocol.

Portal’s project has already received the backing of established crypto firms including Coinbase Ventures, ArringtonXRP Capital, OKEx, and Republic.co.

The initiative is also supported by strategic investments from the executives and founders of Ethereum, DFINITY, Tether, Galaxy Digital, Bitcoin.com, Centre.io, Polymath, Hedera Hashgraph, Blockstream, among many others.

Leveraging Bitcoin’s Security and Uncensorable Nature to Support DeFi

Michael Arrington, Founder of ArringtonXRP, had previously noted that decentralized cross-chain bridging is one of the most challenging problems in cryptocurrency space, particularly as many different blockchains gain mainstream adoption. Arrington had also said that he thinks that Portal’s Bitcoin-native approach to enabling multichain transactions and offering an alternative bridging mechanism should become quite useful.

According to Brain Johnson from Republic Capital, interoperability is required for the blockchain ecosystem to be able to bridge into the mainstream finance sector. He confirmed that Republic Capital invested in Portal with this exact goal in mind. He explained that by leveraging Bitcoin’s security as a critical anchor, they believe that Portal is in an ideal position to implement an effective bridge to support DeFi.

As noted by its developers, Portal offers both the speed and liquidity of centralized platforms as well as the “trust minimization guarantees” of the Bitcoin protocol and network. Notably, Portal may enable a wide range of use-cases including more efficient and uncensorable spot markets, seamless options trading, P2P lending and borrowing. These financial services can be accessed on-chain through peer to peer contracts and without needing third-party custody services or any special control. With this approach, Portal should help with tapping into Bitcoin’s real potential to truly decentralize financial services, globally.

The developers of Portal have noted that its Layer 2/Layer 3 tech, known as Fabric, serves as an open-source toolbox for launching censorship-resistant layers directly on top of Bitcoin’s base layer. As noted by the development team, Fabric supports fully private, off-chain execution of smart contracts for digital asset issuance, P2P swaps, staking, liquidity, and derivatives.

Portal also makes use of Bitcoin’s hash time-locked contracts in order to ensure that users are able to maintain complete control over their funds, which may be offered up in trade while preventing counterparty risk and the potential loss of assets.

Portal also intends to incentivize and promote anonymous, “self-interested” third parties to intermediate and facilitate transactions between “mutually untrusting” peers, all while ensuring a high level of security.

Making DeFi Truly Unstoppable, Potentially Even in Chinese Markets

As noted by its creators, Portal aims to serve as a suite of DeFi solutions built directly on Bitcoin. According to its developers, the protocol has been designed to make DeFi truly “unstoppable” with anonymous, zero-knowledge swaps through the first “true” cross-chain DEX that’s trustless.

As explained by its creators, Portal has been developed to remove the requirement of having to issue wrapped tokens such as wBTC or wETH or various (potentially) risky staking with intermediaries. With Portal, DeFi really becomes a service that everyone can offer, while preserving anonymity within open, more transparent capital markets along with a security model that is as robust and established as BTC mining.

As noted by its developers, Fabric protocol is Portal’s Layer 2/3 technology that supports creating censorship-resistant interactions along with seamless cross-chain swaps, all on top of the Bitcoin network – which is the world’s most secure cryptocurrency network.

While Chinese and other authoritarian governments might try to restrict the financial freedom (and by extension, personal freedom) of their citizens, the argument for building on Bitcoin is pretty straightforward.

As noted by experienced software architects, Bitcoin is the most resilient crypto network and will most likely last a very long time. Notably, it’s a database that is designed to last around 10,000 years. Research also confirms that Bitcoin has the highest degree of security when measured in terms of the cost of chain reversal (or a chain re-organization that is practically unfeasible). Moreover, Bitcoin is quite efficiency-oriented in its design as it is relatively fast, cheap, and powerful even when compared to more established transaction networks.

Most industry experts also agree that money requires more complex applications to be built on top of a secure base layer like Bitcoin. So, it could be inevitable to build these uncensorable financial services on Bitcoin. Also, when considering the blockspace and other design limitations at the base layer, these additional financial apps will have to be implemented as Layers.

In the coming years, we should see the DeFi ecosystem mature considerably, and it might become a lot more challenging, if not impossible, to “ban” Bitcoin, which is actually not possible even now. Recent data has actually shown that there are still hundreds of Bitcoin nodes operating in China, following the government’s decision to ban such activity.  As technology becomes even more powerful and decentralized in the future, it is more than likely that protocols like Portal will support an uncensorable yet fully transparent digital economy.