jakiro
Author: Hu Tao, ChianCatcher
As the encryption industry becomes more and more mainstream, Chinese entrepreneurs seem to be getting further and further away from the center stage.
Once upon a time, projects founded by Chinese people accounted for half of the industry. Familiar cryptocurrency exchanges including Binance, OKX, Bybit, Bitget, Gate, HTX, Bitmart, etc. were all founded by Chinese people.This is especially true in the mining industry. Projects such as Bitmain, Canaan, and Spark Mining Pool all occupy important positions in the industry.What they have in common is that they were all founded in 2017-18 or even earlier.
Although Changpeng Zhao, Mingxing Xu, Jihan Wu, and Justin Sun are still sparing no effort to be active on the front lines of the industry, since the 2020 DeFi Summer craze, a general consensus has gradually formed: the visibility and voice of the new generation of Chinese entrepreneurs in the global encryption industry have declined, and so far there has been no leader who can stand shoulder to shoulder with the previous generation of industry figures.Amid the gap, what has the Chinese entrepreneurial ecosystem experienced?Where are the opportunities in the future?
Regulation and geo-environmental reshaping: the first impact of the ecological fault
The most important factor that cannot be ignored in the past five years is the rapid changes in the regulatory and geopolitical environment.
Starting from 2021, China’s governance of cryptocurrency-related activities has been greatly improved, and scenes such as trading and mining that were originally scattered in gray areas were quickly cut off.In the market hot spots of the past few years, almost any popular concept will be named and matched by regulators, from the previous ICO, NFT and digital collectibles to the recent payments and real-world assets. This will undoubtedly limit the inflow and support of high-quality resources to the Chinese crypto ecosystem to a certain extent.
These blows not only led to the accelerated relocation of mining and exchange businesses, but more importantly, they caused Chinese entrepreneurs to lose a local market with natural network effects, talent density and capital aggregation advantages, and were forced to move to unfamiliar overseas environments for development.
In the early crypto ecosystem, many explosively growing Chinese projects quickly accumulated users under the mobilization mechanism of the Chinese Internet community: WeChat group fission, KOL network, media matrix, offline gatherings… These channels were once one of the most efficient crypto narrative communication systems.However, changes in regulatory policies made this system largely ineffective.
What followed was a rapid shift of the center of industry power to Europe and the United States—the United States’ compliance dominance, the influx of institutional capital, and the increasingly mature regulatory framework began to shape an industry order that was completely different from that of 2017–2018.The new narrative, new regulatory landscape and new capital structure naturally favor English-speaking markets and entrepreneurial teams with a strong compliance orientation.It is difficult for crypto projects with certain gambling properties like prediction markets to be born in a Chinese-speaking market environment where gambling is strictly regulated.
In such an industry environment, it is also more difficult for the new generation of Chinese entrepreneurs to gain the “tacit trust” of global media, regulators, capital and users. Compared with similar European and American projects, they need to invest more trial and error costs in marketing, compliance and other aspects.
Shift in capital preferences: the second impact of the ecological fault
If the institutional gap caused by regulation and geopolitical environment is the first impact, then the “structural preference shift” from the capital market has further exacerbated the marginalization trend of Chinese entrepreneurs in the new cycle.
In today’s industry environment, if there is a lack of financial and resource support from strong VCs, projects will be in a weak position in terms of user acquisition, currency listing, narrative, etc. Chinese entrepreneurs are already at a disadvantage on the financial side.
Affected by the poor overall trend of altcoins and the sharp decline in investment returns, VCs with Chinese backgrounds have basically significantly reduced their investment frequency in the past 2-3 years, or even stopped completely.Chinese entrepreneurs have very limited choices in terms of financing and exit paths.In the face of VCs dominated by Europe and the United States, Chinese projects have indescribable advantages due to language and cultural differences. Therefore, the amount and quantity of financing received by Chinese projects has been on a downward trend in recent years.
Number of projects in mainland China and industry share of financing amount Source: RootData
Since the beginning of this year, the encryption industry has set off a wave of IPOs and mergers and acquisitions. Companies such as Circle and Gemini have successfully listed on the US stock market, and Coinbase, Ripple and other companies have frequently made acquisitions. This has greatly enhanced the confidence of entrepreneurs and even VCs, but these are basically irrelevant to Chinese projects.It can be said that European and American projects are enjoying the institutional dividends of mainstreaming the encryption industry.
From the perspective of mainstream capital, European and American projects have natural advantages in terms of compliance, cultural recognition, and exit. Unless Chinese projects have super advantages in team configuration and technical background, it will be difficult to win the favor of European and American capital.
Misalignment between capability structure and industry maturity: the third impact of ecological fault
In the past ten years, the main theme of the encryption industry has been in the infrastructure and tools track. During this period, although there have been iterations of new concepts such as DeFi, NFT, games, and inscriptions, most of them have failed to become mainstream projects.
In a previous interview with ChainCatcher, Folius Ventures founder Jason Kam said,In the past 5 to 10 years, the development of Web3 has been laying the foundation, and the more important thing is the product category and status. This is a decade that focuses on ecology, infrastructure, tools, and consensus building.In other words, it is also 10 years of a B2B product.
There are three generations of extremely outstanding engineers in Europe and the United States, old, middle and young, who are very good at building this kind of B2B ecosystem.AndThe Asia-Pacific region is mainly composed of young engineers born in the 1980s and 1990s. Their career path development is actually accompanied by the boom of China’s B2C industry that began in 2005.In other words, their engineering experience is in B2C and applications, which is incompatible with the entire blockchain development process, so they may not do well in public chains and infrastructure.
“If entrepreneurs in the Asia-Pacific region compete with European and American entrepreneurs at the To C level, I don’t think entrepreneurs in the Asia-Pacific region have any disadvantages, and may even have advantages. The advantage lies in their rich product experience and their extremely aggressive approach to seizing market share.”
Although in the exchange track with stronger Web2 attributes, Chinese entrepreneurs have proven this, and in terms of on-chain C-end products, Stepn’s short-lived flash in the pan has proved the talent of Chinese entrepreneurs in C-end products, but the overall market explosion of consumer products has not yet arrived. This is closely related to the maturity of the industry infrastructure, and the market has not yet reached the “comfort zone” of Chinese entrepreneurs.
Entrepreneurs with multicultural backgrounds are becoming industry leaders
Strictly speaking, Chinese entrepreneurs are not a new representative case in recent years.Jeff Yan, the founder of Hyperliquid, was born of Chinese descent. His parents immigrated from China. He was born and raised in Palo Alto, California, USA. He later attended Harvard University, majoring in mathematics and computer science.After graduation, Jeff joined high-frequency trading giant Hudson River Trading as a quantitative trader.In 2022, Jeff founded Hyperliquid and relied on the concept of “small but fine”, no VC, and user-driven growth to build it into the fastest-growing giant in the encryption industry in recent years.
However, although Hyperliquid is one of the most successful projects in this cycle with the participation of “Chinese ancestry”, it is difficult to regard it as a continuation of the influence of Chinese entrepreneurs, because he is almost never active in the Chinese ecosystem, and what he shapes in the outside world is almost all European and American values and concepts, and he has never expressed them in Chinese.The rise of Jeff and Hyperliquid further highlights the fact that in the new cycle, Chinese ancestry may still have global influence, but the prerequisite must be integrated into the mainstream cultural system rather than relying on the old Chinese entrepreneurial path.If you only rely on a certain cultural system, you can only become a regional leading company, but cannot achieve outstanding results in the globalization process.
In fact, most of the founders of many well-known Chinese projects that have become leaders on the track this cycle also have multicultural backgrounds and have studied in Europe and the United States at least in college. For example, Sean Ren, founder of Sahara, Yu Hu, founder of Kaito, Erick Zhang, founder of BuidlPad, etc., long-term European and American experience plays an important role in their development path.
In fact, entrepreneurs with multicultural backgrounds are indeed more popular in the crypto industry. For example, the founders of Ethereum, Solana, and Binance Zhao Changpeng all immigrated to North America during their childhoods from China and Russia. The collision of different political systems and cultures has enabled these entrepreneurs to realize earlier the value of blockchain in empowering personal sovereignty, and quickly take action. Cultural inclusiveness will be considered as a focus in team formation, resource docking, and daily operations. In the end, it will be easier to win the favor of users with different regional cultural backgrounds.
The essential characteristics of encryption without borders and the supervision and interest demands of various countries on encryption. The conflict and integration between the two will dominate the development trend of the encryption industry for a long time.Chinese entrepreneurs are indeed facing more and more challenges in the context of multiple conflicts between China and the United States and the mainstreaming of the encryption industry. However, as the encryption industry has recently encountered many gambling tendencies and nihilistic doubts, and even more and more project concepts have been falsified, the development trend of Chinese entrepreneurs may no longer be an important issue in the industry. What is truly worthy of attention is: when the hype growth and narrative bubble gradually ebb, who can continue to invest in the long-term value of decentralized technology and redefine the direction of the industry through real products and verifiable innovation.
The core competitiveness of the future industry structure will depend more on whether the founding team has cross-cultural collaboration and long-term technical investment capabilities, as well as institutional understanding and organizational resilience in the face of regulatory uncertainty.No matter what cultural or national background you come from, only those who can make lasting efforts in these dimensions will become the real beneficiaries of the next cycle.In other words, the success of the crypto industry has never been determined by “where they come from” but by “what they can accomplish.”
