Despite China’s sweeping bans on cryptocurrencies, domestic web3 talent is quietly flourishing, with many venturing beyond the country’s border.
From offering crypto derivative products to making NFT games, Chinese web3 entrepreneurs’ footprint is far-reaching worldwide. We spoke to a dozen Chinese founders and investors to find out how this group is trying to build global web3 businesses while still keeping their roots in China and taking advantage of the home country’s abundant tech talent.
Many of them asked for anonymity. Some don’t want to draw the attention of the authorities because there are no clear rules around operating in China and serving overseas users, and others want to avoid being labeled “Chinese” at a time when China’s geopolitical tensions with the West run high.
Many believe the current state of the internet, or web2, has become overly dominated by centralized, rent-seeking corporations like Google and Meta. Part of the appeal of web3 is to reclaim 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 applications of blockchain that have attracted billions of dollars in investment, but they are far from the only use cases of 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 blockchain’s role in the technological revolution.
What China doesn’t want are cryptocurrencies’ crashing prices that have roiled the market in recent months. It appears to be encouraging a more controlled, centralized version of web3 — blockchain should be managed by trusted organizations rather than anonymous computers on the open web and bring productivity to areas that the government sees fit.
It is no surprise that China moved to outlaw initial coin offerings and crypto-based transactions for their financial risks, but there’s a grey area when it comes to other blockchain applications. While China has warned against the use of NFT as financial securities, it’s rebranding it as “digital collectibles,” which can only be bought using China’s fiat currency RMB, has little liquidity, and is tasked with promoting copyrights protection.
Some of China’s web3 developers are following the direction given at the top, joining in to build the infrastructure for digital collectibles. Other use cases have also gotten the government’s nod. Alibaba’s financial affiliate Ant Group, for example, has devised an array of blockchain services for purposes like using blockchain to verify court evidence and tracking food supply chains for safety.
Some argue that cryptocurrency, which is seen as a store of value, is like the bread and butter assets of web3. Without it, web3 won’t be able to operate at its fullest potential. Those in China who hold this view have largely turned their focus overseas, serving international users and raising funds from offshore institutions.
Over the past few years, scores of Chinese web3 startups have moved their entities overseas in the wake of the country’s crypto crackdown, but they are not outright giving China up. They follow a playbook proven by previous generations of tech firms: domicile offshore, keep some operations in China, and go after foreign markets.
“Where else are you gonna find thousands of capable engineers?” says one China-based employee of a crypto exchange, asking not to be named.
China played a pivotal role in the blockchain industry’s early development, spawning a generation of crypto-savvy talent. Some of the world’s largest crypto exchanges, including Binance, FTX, KuCoin, Crypto.com, OKX, and Huobi, started out in the Greater China area. The world’s biggest crypto mining company Bitman was founded in Beijing. Chinese conglomerate Wanxiang was Ethereum’s first corporate investor and birthed the crypto investment powerhouse HashKey.
“There are seven million programmers here and they have proven again and again that they can innovate,” says Herbert Yang, general manager in Asia for Dfinity. The a16z-backed, Zurich-headquartered company came looking for projects in China that can be deployed on its blockchain network because the country offers “a great pool of tech talent.”
Other international organizations turn to China for the same reason. Ethereum Foundation, the organization behind the second-largest cryptocurrency, sponsored the “ETH Shanghai” hackathon to draw developers to its blockchain network. The virtual version of the event attracted nearly 1,000 developers this year, with an estimated 60% coming from China, according to the event’s organizer Mask Network, a startup bringing web3 functions to web2 platforms.
Chinese crypto firms moving overseas try to bring along their Chinese staff, but most of them resort to keeping some presence in China. While crypto-friendly countries like Singapore have policies for attracting foreign talent, local governments often set quotas to protect domestic employment. Employees with families in China are reluctant to relocate in the first place.
For web3 startups trying to hire in China over the last two years, the timing was ripe. Crypto value reached historic highs last year when China’s crackdown on its internet industry was well underway. Large-scale layoffs and slashed salaries prompted many workers from the likes of Tencent and Alibaba to seek out opportunities in the web3 frontier.
Others voluntarily quit their jobs at established tech firms to ride the web3 wave, either because they are lured by blockchain’s technological potential or the chance to accumulate wealth rapidly. Alibaba’s fintech affiliate Ant Group, for instance, has lost dozens of its employees to web3 startups in recent months, TechCrunch learned.
Building for user experience
It’s not news that tech outfits employ workers in China while serving international users. Zoom had hundreds of R&D staff in China before Western media reports questioned the security of its cross-data practices. Alibaba-owned Lazada and Shopee, Southeast Asia’s e-commerce foes, also keep significant operations in Shenzhen, an export and tech talent hub.
For many tech firms, China remains a desirable place to hire, thanks to a decade of breakneck growth and competition in its internet sector. Companies like Alibaba, Tencent, and TikTok owner ByteDance have earned recognition from Silicon Valley and beyond for innovation in their respective fields.
“Chinese-founded projects are great at managing and designing business-to-consumer products,” suggests a Chinese worker at a U.S.-based blockchain startup. “They are obsessed with data analytics and spend a lot of time finetuning products.”
China’s strength in web3 lies less in building blockchain’s underlying infrastructure but more in developing applications for users, reckoned several crypto investors and entrepreneurs.
“The early opportunities in web3 are in protocols [infrastructure for blockchain applications], but they are mostly solving transactions while user experience is overlooked,” says a Hong Kong-based blockchain startup founder.
“Chinese people are very good at building user experience. After all, China has birthed a robust web2 ecosystem,” he adds.
China’s tech workers are also known to be “hardworking,” reckons Curt Shi, an early investor in the move-to-earn app StepN and a partner at Prodigital Future Fund, which looks for Chinese-founded web3 projects going global. While the overworking culture in China’s tech sector has drawn fire in recent years, others see it as the country’s advantage.
StepN, for example, is run by founders who emigrated from China to Australia. Like many entrepreneurs in the Chinese diaspora, it takes advantage of its original and adopted homes by keeping a small team in China as part of its international staff.
“That’s why it can have customer support 24/7 while many of its rivals can’t,” Shi says.
A cultural issue
Despite the strengths that Chinese-run web3 startups can potentially muster, they face similar challenges as their web2 predecessors.
TikTok, which has pioneered snappy video sharing, is arguably the only Chinese consumer internet platform that has achieved global success in recent years. Without a significant on-the-ground presence in foreign countries, TikTok took off early on thanks to its parent ByteDance’s algorithm-driven content discovery machine developed in Beijing.
But entrepreneurs’ cultural understanding becomes critical in web3. The industry is still in its infancy, meaning a company’s ability to tell convincing stories is key to onboarding early adopters. “Companies in web3 have to resonate with their users culturally,” says a Singapore-based founder of a decentralized autonomous organization (DAO) who is originally from China.
Web3, as its advocates say, is in many cases community-run. The technology undergirding blockchain has the idea of consensus built-in. DAOs, for example, execute decisions based on the collective consensus of their communities.
Chinese-founded web3 teams that lack the language ability to effectively convey their ideas or the understanding of other cultures may have a harder time winning users in new markets.
“I’ve seen Chinese companies with good products, but they don’t know how to talk to the international communities,” the DAO founder says. “Just having a good product isn’t enough anymore in web3.”