In the context of geopolitical tensions and global liquidity fragmentation, re-examining the Era of CeDeFi Opportunity

Original Article Title: Convergence and Divergence: US, China, CeDeFi
Original Article Author: @0xtony0x
Original Article Translation: zhouzhou, BlockBeats

Editor's Note: This article explores the changes in the global financial system, particularly the convergence of cryptocurrency with the traditional financial system. With geopolitical tensions and the decline of the US dollar's dominance, blockchain technology has become a neutral financial infrastructure, driving the development of crypto assets, stablecoins, and tokenized RWAs. Through the convergence of CeFi, DeFi, and TradFi, capital flows and interest rate markets are gradually converging, attracting more institutions into the blockchain world.

The following is the original content (slightly reorganized for ease of understanding):

US-China Divergence and De-Dollarization

Recently, the sharp fluctuations in the foreign exchange market have highlighted the escalating global macroeconomic tensions and significant changes in the financial landscape. The USD/JPY soared to the 145 level, mainly driven by the Bank of Japan's continued dovish stance—maintaining interest rates unchanged and not signaling any rate hike—along with rapid unwinding of positions that were long on the yen in the market. The interest rate differential between the US and Japan remains significant, making the US dollar more attractive due to the Federal Reserve maintaining relatively higher interest rates while Japan maintains loose monetary policy.

Meanwhile, the TWD against the USD surged over 8% in just two days, marking an extremely rare "19-sigma" event. This sudden movement was triggered by local Taiwan institutions rapidly adjusting their positions, reducing their exposure to the US dollar, highlighting the market's heightened concerns over geopolitical risks and vividly reflecting the direct impact of the escalating US-China tensions on the global foreign exchange market.

TSD/USD Price Chart

Earlier this month, the geopolitical tensions between the US and China escalated rapidly. President Trump announced a record 145% tariff increase on Chinese imports, prompting China to swiftly retaliate by imposing a 125% tariff on US products, further deepening the economic rift between the two sides. This escalation echoes the classic "Thucydides Trap" theory, whereby when an emerging power challenges an existing hegemon, conflict is often difficult to avoid.

However, this time is not just about trade barriers; it represents the systematic decoupling of the world's two largest economies, with the "second-order effects" causing a chain reaction in global liquidity and the dominance of the dollar.

For a long time, the reason the dollar has been able to dominate global trade and finance is due to people's deep trust in the U.S. system—this trust is based on its political stability, the predictability of its foreign policy, and the openness of capital flows. As Bipan Rai, Managing Director at BMO Global Asset Management, pointed out: "There are clear signs that this trust is eroding... Global asset allocation trends are gradually shifting away from the dollar."

In fact, the foundation of dollar hegemony is quietly loosening due to geopolitical turmoil and the increasingly unpredictable foreign and economic policies of the United States. It is worth noting that despite President Trump's stern warnings to other countries not to abandon trade settled in dollars or face economic penalties, the dollar experienced significant volatility during his term—in the first 100 days of his administration, the dollar saw its most significant devaluation since the Nixon era. This symbolic moment highlights a broader, accelerating trend: multiple countries worldwide are actively exploring alternative paths to de-dollarization, signaling a gradual shift away from reliance on the dollar in the global financial system.

For decades, China's trade surplus dollars have continuously flowed back to U.S. Treasuries and financial markets, supporting dollar hegemony since the collapse of the Bretton Woods system. However, with the sharp deterioration of strategic mutual trust between China and the U.S. in recent years, this long-standing capital cycle is facing an unprecedented interruption. As one of the largest overseas holders of U.S. assets, China drastically reduced its exposure in U.S. debt, with its holdings of U.S. Treasuries dropping to around $760.8 billion by early 2025, a nearly 40% decrease from the peak level in 2013.

This shift reflects China's broader strategic response to the increasing risk of U.S. economic sanctions—after all, the U.S. has frozen foreign assets several times in the past, with the most significant example being the freezing of approximately $350 billion of Russian Central Bank reserves in 2022.

Therefore, Chinese policymakers and influential economists are increasingly advocating for diversifying China's foreign exchange reserves, gradually reducing reliance on dollar assets, fearing that these assets could become a potential geopolitical liability. This strategic adjustment includes adding roughly 144 tons of gold reserves in 2023 and promoting the internationalization of the yuan and exploring digital currency alternatives.

This systemic "de-dollarization" is tightening global dollar liquidity, increasing international financing costs, and posing a serious challenge to markets that have long relied on China to recycle its surplus dollars back into the Western financial system.

In addition, China is actively advocating for the establishment of a multipolar financial order, encouraging developing countries to use their own currencies or the Chinese yuan more in trade settlement, rather than relying on the US dollar. At the core of this strategy is the Cross-Border Interbank Payment System (CIPS), which is explicitly designed as a comprehensive alternative on a global scale to the existing SWIFT and CHIPS systems, covering both messaging (SWIFT functionality) and settlement (CHIPS functionality).

Since its launch in 2015, CIPS has aimed to simplify international transactions priced in yuan, thereby reducing global reliance on the US dollar-dominated financial infrastructure. Its increasingly widespread adoption signals a systemic shift of the global financial system towards multipolarity: by the end of 2024, CIPS had attracted 170 direct institutional members from 119 countries and regions, along with 1497 indirect participants.

This steady growth culminated on April 16, 2025 — reportedly, on that day, CIPS's daily transaction volume surpassed SWIFT for the first time, processing a record-breaking 12.8 trillion yuan (approximately $1.76 trillion USD). While this milestone has not been officially confirmed, it underscores the transformative potential of China's financial infrastructure in reshaping the global monetary landscape — transitioning from a dollar-centric system to a decentralized, multipolar system centered around the yuan.

As economist Keyu Jin from the London School of Economics stated at a forum held at the Munk School: "In the past decade, trade invoiced in yuan has grown from 0% to 30%, and now 50% of China's capital flows are settled in yuan, a proportion much higher than before."

Liquidity Must Flow: The Convergence of CeDeFi

However, as geopolitical boundaries harden and traditional financial channels narrow, a parallel phenomenon is quietly unfolding: global liquidity is gradually converging into a borderless, decentralized financial network. The fusion of CeFi (Centralized Finance), DeFi (Decentralized Finance), and TradFi (Traditional Finance) liquidity signifies a restructuring of capital flows and is propelling blockchain-based networks towards a new core financial infrastructure role in reshaping the global economy.

Specifically, the trend of CeDeFi (Centralized and Decentralized Finance Integration) is being driven by several shared "gravities":

· Stablecoins serving as a means of payment, bringing liquidity to B2B and B2C on-chain

· CeFi institutions offering both crypto and traditional financial products

· DeFi protocols bridging on-chain and off-chain yields, creating new interest rate arbitrage paths

Stablecoins as Payment Infrastructure

Payment has always been the "holy grail" of the crypto space. Tether, as the de facto shadow bank of offshore dollars, has become the most profitable financial institution in terms of average employee earnings. Recent geopolitical turmoil will only further drive the demand for stablecoins as global capital increasingly seeks a dollar exposure through an uncensored, borderless platform.

Whether it's Argentine savers hedging against inflation with USDC or Chinese merchants bypassing the banking system to settle trades with Tether, the underlying motivation is the same: to obtain reliable value without relying on the traditional financial system.

In an era of geopolitical tension and financial uncertainty, this demand for "transactional sovereignty" is highly appealing. By 2024, stablecoin transaction volumes have surpassed Visa. Ultimately, the digital dollar (stablecoin) operating on a crypto network is rebuilding the 20th-century offshore dollar system—providing dollar liquidity outside the U.S. banking system for markets wary of U.S. hegemony.

CeFi Institutions Offering Traditional Financial and Crypto Products

In addition to enabling global liquidity to continue settling in dollars, we also see CeFi platforms expanding vertically into the crypto space and vice versa:

· Kraken acquired Ninja Trading to expand its traditional financial asset product line, ultimately enabling cross-asset margin trading between traditional finance and crypto trading

· In China, major brokerages like Tiger Brokers and Futu, often referred to as the "Chinese version of Robinhood," have started accepting cryptocurrencies such as USDT, ETH, and BTC as deposit methods

· Robinhood, on the other hand, is focusing on its crypto business as a core growth area, planning to launch products such as tokenized stocks and stablecoins

With the increased regulatory clarity brought by new market structure laws, the horizontal integration between traditional finance and crypto products will only become more critical.

DeFi Protocol Bridging Crypto and Traditional Financial Yields

Meanwhile, we are also seeing DeFi protocols leveraging the high yields native to crypto to attract traditional financial or off-chain capital, while also enabling TradFi institutions to access global on-chain liquidity for executing their off-chain strategies.

For instance, projects we have invested in, such as BounceBit (@bounce_bit) and Ethena (@ethena_labs), provide traditional financial institutions with "carry trade yields." Due to the programmability of on-chain dollars, they can package this carry trade product into on-chain "synthetic dollars," directly targeting the $13 trillion fixed income market. Such products are particularly attractive to traditional financial institutions as carry trade yields are negatively correlated with bond yields. Therefore, they have effectively paved a new path for interest rate arbitrage, driving further integration of capital flows and interest rate markets among CeFi, DeFi, and TradFi.

Furthermore, Cap Lab (@capmoney_) allows TradFi institutions to borrow from on-chain liquidity pools to execute their off-chain trading strategies, providing a previously unprecedented avenue for retail investors to access high-frequency trading (HFT) yields. It effectively expands EigenLayer's economic security perimeter from on-chain activity to off-chain yield generation strategies.

These developments collectively drive liquidity convergence, narrowing the gap between on-chain yields, off-chain yields, and traditional risk-free rates. Ultimately, these innovative solutions become powerful arbitrage tools, aligning capital flows and interest dynamics across DeFi, CeFi, and TradFi.

CeDeFi Liquidity Convergence —> CeDeFi Product Offerings

Convergence of CeFi, DeFi, and TradFi liquidity towards blockchain networks signifies a fundamental shift in the role of on-chain asset allocators—from primarily crypto-native traders to increasingly diverse institutions seeking investments beyond crypto-native assets and yields.

The downstream effect of this trend is the expansion of on-chain financial product suites, particularly the launch of more RWA products. As more RWA products come onto the chain, it will once again entice more institutions globally to join the on-chain market, forming a self-reinforcing cycle that ultimately converges all financial participants and assets onto a unified global ledger.

Historically, the trajectory of cryptocurrency has gradually incorporated higher-quality real-world assets, evolving from stablecoins and tokenized treasuries (such as Franklin Templeton's Benji and Blackstone's BUIDL) to increasingly complex financial instruments like Apollo's recent tokenized private credit fund, with the potential for further expansion into tokenized equities.

The declining interest of retail speculators in speculative crypto-native assets highlights a significant market void and presents an opportunity for institutional-grade tokenization of RWAs. Against the backdrop of escalating global geopolitical uncertainties—such as the tense economic decoupling between the US and China—blockchain technology is gradually emerging as a credible and neutral financial infrastructure.

Ultimately, from trading crypto-native altcoins to payments, tokenized treasuries, and stocks, all financial activities will converge on this verifiable and borderless global financial ledger, fundamentally reshaping the global economic landscape.

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