Despite China’s sweep cryptocurrency bans, domestic web3 talent is quietly thriving, with many venturing beyond the country’s borders.
From offering crypto derivatives to creating NFT games, the footprint of Chinese web3 entrepreneurs is considerable worldwide. We spoke to a dozen Chinese founders and investors to find out how this group is trying to build global Web3 businesses while keeping its roots in China and leveraging the home country’s abundance of tech talent.
Many of them requested anonymity. Some don’t want to attract the attention of the authorities because there are no clear rules regarding operating in China and serving foreign users, and others want to avoid being labeled “Chinese” at a when geopolitical tensions between China and the West are high.
Many believe that the current state of the Internet, or web2, has become too dominated by centralized, rent-seeking corporations like Google and Meta. Part of the appeal of web3 is reclaiming the internet through distributed ledger technologies like blockchain, which promises to bring greater decentralization and user ownership.
Cryptocurrencies and non-fungible tokens are two popular blockchain applications that have attracted billions of dollars in investment, but they are far from the only use cases for the technology.
China is still figuring out what it wants from Web3, but it clearly doesn’t want to miss out. In 2019, President Xi Jinping personally vouched for the role of blockchain in the technological revolution.
What China doesn’t want are the plummeting cryptocurrency prices that have rocked the market in recent months. It seems to encourage a more controlled and centralized version of the web3 – blockchain should be run by trusted organizations rather than anonymous computers on the open web and bring productivity to areas the government sees fit.
It’s no surprise that China decided to ban initial coin offerings and crypto-based transactions for their financial risks, but there is a gray area when it comes to other blockchain applications. While China has warned against using NFTs as financial securities, it is rebranding them as “digital collectibles,” which can only be purchased using China’s RMB fiat currency, has little cash and is responsible for promoting copyright protection.
Some of the Chinese Web3 developers are following the direction given at the summit, joining in building the infrastructure for digital collectibles. Other use cases have also been given the green light by the government. Alibaba’s financial subsidiary Ant Group, for example, has designed a range of blockchain services for purposes such as using blockchain to verify forensic evidence and tracking food supply chains for security.
Some argue that cryptocurrency, which is considered a store of value, is like the bread and butter of web3. Without it, web3 will not be able to perform to its full potential. Those in China who share this view have largely looked overseas, serving international users and raising funds from offshore institutions.
Over the past few years, dozens of Chinese web3 startups have moved their entities overseas in the wake of the country’s crypto crackdown, but they’re not abandoning China outright. They follow a playbook tried and tested by previous generations of tech companies: domicile overseas, keep some operations in China, and go after foreign markets.
“Where else are you going to find thousands of skilled engineers? says a China-based employee of a crypto exchange, asking not to be named.
China played a pivotal role in the early development of the blockchain industry, spawning a generation of crypto-savvy talent. Some of the largest crypto exchanges in the world, including Binance, FTX, KuCoin, Crypto.com, OKX, and Huobi, started in the Greater China region. The world’s largest crypto mining company, Bitman, was founded in Beijing. Chinese conglomerate Wanxiang was the first corporate investor in Ethereum and birthed the crypto investment powerhouse HashKey.
“There are seven million programmers here and they have proven time and time again that they can innovate,” says Herbert Yang, managing director in Asia for Dfinity. The Zurich-based company backed by a16z came looking for projects in China that could be deployed on its blockchain network, as the country offers “a large pool of tech talent.”
Other international organizations look to China for the same reason. The Ethereum Foundation, the organization behind the second-largest cryptocurrency, sponsored the “ETH Shanghai” hackathon to attract developers to its blockchain network. The virtual version of the event has attracted nearly 1,000 developers this year, with about 60% coming from China, according to event organizer Mask Network, a startup bringing web3 functions to web2 platforms.
Chinese crypto companies that go overseas try to bring in their Chinese staff, but most of them resort to having some presence in China. While crypto-friendly countries like Singapore have policies to attract foreign talent, local governments often set quotas to protect domestic employment. Employees with families in China are reluctant to move in the first place.
For web3 startups trying to hire in China over the past two years, now was the time. The value of crypto hit all-time highs last year when China’s crackdown on its internet industry was well underway. Large-scale layoffs and wage cuts have prompted many workers like Tencent and Alibaba to seek opportunities on the web3 frontier.
Others voluntarily quit their jobs at established tech companies to ride the Web3 wave, either because they are drawn to the technological potential of blockchain or the opportunity to accumulate wealth quickly. Alibaba’s fintech subsidiary Ant Group, for example, has lost dozens of its employees to web3 startups in recent months, TechCrunch has learned.
Top Product Managers
It’s not news that tech companies employ workers in China while serving international users. Zoom had hundreds of R&D employees in China before Western media questioned the security of its cross-data practices. Lazada and Shopee, owned by Alibaba, the enemies of e-commerce in Southeast Asia, also maintain significant operations in Shenzhen, a hub of export and tech talent.
For many tech companies, China remains a desirable place to hire, thanks to a decade of skyrocketing growth and competition in its internet sector. Companies like Alibaba, Tencent and ByteDance, owner of TikTok, have been recognized by Silicon Valley and beyond for their innovation in their respective fields.
“Chinese-founded projects are excellent for managing and designing business-to-consumer products,” suggests a Chinese worker at a US-based blockchain startup. “They are obsessed with analyzing data and spend a lot of time tweaking products.”
China’s strength in web3 lies less in building the underlying blockchain infrastructure and more in developing applications for users, several crypto investors and entrepreneurs have argued.
“The first opportunities of web3 are in the protocols [infrastructure for blockchain applications]but they mostly resolve transactions while the user experience is neglected,” says a Hong Kong-based blockchain startup founder.
“The Chinese are very good at creating a user experience. After all, China has given birth to a robust Web2 ecosystem,” he adds.
Chinese tech workers are also known to be “hard workers,” says Curt Shi, an early investor in the StepN app and a partner at Prodigital Future Fund, which seeks out Chinese-founded Web3 projects that globalize. As the culture of overwork in China’s tech sector has flared up in recent years, others see it as a benefit to the country.
StepN, for example, is run by founders who emigrated from China to Australia. Like many entrepreneurs in the Chinese diaspora, he takes advantage of his original and adopted homes by keeping a small team in China as part of his international staff.
“That’s why it can have 24/7 customer support while many of its rivals cannot,” Shi explains.
A cultural issue
Despite the strengths Chinese-led Web3 startups can potentially muster, they face the same challenges as their Web2 predecessors.
TikTok, which pioneered fast video sharing, is arguably the only Chinese mainstream internet platform to achieve global success in recent years. Without a significant on-the-ground presence in foreign countries, TikTok took off early on thanks to its parent company ByteDance’s algorithm-based content discovery machine developed in Beijing.
But the cultural understanding of entrepreneurs becomes essential in the web3. The industry is still in its infancy, which means a company’s ability to tell compelling stories is key to onboarding early adopters. “Web3 companies need to resonate culturally with their users,” says a Singapore-based founder of a decentralized autonomous organization (DAO) from China.
Web3, as its proponents say, is in many cases community-driven. The technology behind blockchain has the idea of consensus built into it. DAOs, for example, execute decisions based on the collective consensus of their communities.
web3 teams founded in China that lack the linguistic capacity to effectively convey their ideas or understanding of other cultures may have a harder time gaining users in new markets.
“I’ve seen Chinese companies with good products, but they don’t know how to talk to international communities,” says the DAO founder. “Having a good product is no longer enough in web3.”