Web3 Inside and Outside the Great Firewall: The Triple Impact on Chinese Entrepreneurs and Solutions

Original author: Hu Tao, ChianCatcher

As the crypto industry becomes increasingly mainstream, Chinese entrepreneurs seem to be moving further and further away from center stage.

At one time, projects founded by Chinese individuals dominated half of the industry, including well-known cryptocurrency exchanges such as Binance, OKX, Bybit, Bitget, Gate, HTX, and Bitmart. This was even more pronounced in the mining industry, with projects like Bitmain, Canaan Creative, and Spark Pool holding significant positions. What they had in common was that they were all founded around 2017-2018 or even earlier.

While figures like Changpeng Zhao, Mingxing Xu, Jihan Wu, and Justin Sun remain actively involved in the industry, a general consensus has emerged since the 2020 DeFi Summer boom: the visibility and influence of the new generation of Chinese entrepreneurs in the global crypto industry have declined, and so far, no leader has emerged to rival the previous generation. Given this shift, what has happened to the Chinese entrepreneurial ecosystem? Where do future opportunities lie?

Regulation and Geo-environmental Reshaping: The First Impact of Ecological Faults

The most significant factor over the past five years has been the dramatic changes in the regulatory and geopolitical environment.

Since 2021, China has significantly increased its governance of cryptocurrency-related activities, rapidly cutting off previously scattered, gray-area scenarios such as trading and mining. In recent years, almost any trending concept has been targeted by regulators, from ICOs, NFTs, and digital collectibles to more recent issues like payments and real-world assets. This undoubtedly limits the inflow and support of high-quality resources into the Chinese crypto ecosystem.

These blows not only accelerated the relocation of mining and exchange businesses overseas, but more importantly, they deprived Chinese entrepreneurs of a home market with natural advantages in network effects, talent density, and capital concentration, forcing them to relocate to unfamiliar overseas environments.

In the early days of the crypto ecosystem, many rapidly growing Chinese-owned projects quickly accumulated users through the mobilization mechanisms of the Chinese internet community: WeChat group sharing, KOL networks, media matrix, offline gatherings... These channels were once among the most efficient systems for disseminating crypto narratives. However, changes in regulatory policies rendered this system largely ineffective for a time.

This has led to a rapid shift of industry power to Europe and the United States—compliance-driven policies, the influx of institutional capital, and the increasingly mature regulatory framework in the US are shaping an industry order drastically different from that of 2017–2018. The new narrative, the new regulatory landscape, and the new capital structure naturally favor English-speaking markets and startups with a strong compliance focus. Crypto projects like prediction markets, which have a certain gambling element, are unlikely to emerge in the Chinese-speaking market environment, which has strict regulations on gambling.

In this industry environment, it is more difficult for the new generation of Chinese entrepreneurs to gain the "default trust" of global media, regulators, capital and users. Compared with similar European and American projects, they need to invest more in trial and error costs in marketing, compliance and other aspects.

Shifting Capital Preferences: The Second Shock of Ecological Disruption

If the institutional barriers caused by regulation and geopolitical environment are the first shock, then the "structural shift in preferences" from the capital market has further exacerbated the marginalization of Chinese entrepreneurs in the new cycle.

In today's industry environment, without the financial and resource support of strong VCs, projects will be at a disadvantage in terms of user acquisition, token listing, and narrative. Chinese entrepreneurs are already at a disadvantage from the very beginning in terms of funding.

Affected by the overall poor performance of altcoins and a significant drop in investment returns, venture capital firms with Chinese backgrounds have drastically reduced their investment frequency, or even stopped investing altogether, in the past 2-3 years. Chinese entrepreneurs face severe limitations in both fundraising and exit strategies. Facing Western-dominated venture capital firms, Chinese projects have little advantage due to language and cultural differences, resulting in a continuous decline in both the amount and number of funding rounds for Chinese projects in recent years.

Industry share of the number and funding amount of projects from mainland China. Source: RootData

This year has seen a surge in IPOs and mergers in the crypto industry, with companies like Circle and Gemini successfully listing on the US stock market and Coinbase and Ripple making frequent acquisitions. This has significantly boosted the confidence of entrepreneurs and even venture capitalists, but these developments have largely been unrelated to Chinese projects. It's fair to say that Western projects are enjoying the institutional benefits of the crypto industry's mainstreaming.

In the view of mainstream capital, European and American projects have natural advantages in terms of compliance, cultural identity and exit strategy. Chinese projects, unless they have a strong advantage in team configuration and technical background, will find it difficult to win the favor of European and American capital.

The mismatch between capability structure and industry maturity: the third shock of ecological discontinuity

Over the past decade, the main focus of the crypto industry has been on infrastructure and tools. 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, Jason Kam, founder of Folius Ventures, stated that the development of Web3 over the past 5 to 10 years has been foundational, with product categories and status being paramount. This decade has been focused on ecosystems, infrastructure, tools, and building consensus. In other words, it has also been a decade of B2B products.

Europe and America have three generations of extremely talented engineers who are very adept at building B2B ecosystems. The Asia-Pacific region, however, is primarily comprised of young engineers born in the 1980s and 1990s, whose career paths have largely followed the boom in China's B2C industry since 2005. In other words, their engineering experience is focused on B2C and applications, which is incompatible with the overall development of blockchain technology. Therefore, they may not excel in public chains and infrastructure.

"If entrepreneurs in the Asia-Pacific region were to compete on the same stage as their counterparts in Europe and America at the To C level, I believe that Asia-Pacific entrepreneurs would not be at a disadvantage at all, and might even have an advantage. Their advantage lies in their extensive product experience and their highly aggressive approach to seizing market share."

While Chinese entrepreneurs have proven themselves in the exchange sector, which has a stronger Web2 focus, Stepn's brief success in on-chain consumer products, while demonstrating their talent in this area, has not yet led to a significant market boom for consumer-grade products. This is closely related to the maturity of the industry infrastructure, as the market has not yet reached the "comfort zone" of Chinese entrepreneurs.

Entrepreneurs from diverse cultural backgrounds are becoming industry leaders.

Strictly speaking, Chinese entrepreneurs are not a new representative case in recent years. Jeff Yan, the founder of Hyperliquid, is of Chinese descent; his parents immigrated from China, and he was born and raised in Palo Alto, California. He later attended Harvard University, majoring in mathematics and computer science. After graduating, Jeff joined the high-frequency trading giant Hudson River Trading as a quantitative trader. In 2022, Jeff founded Hyperliquid, and with its "small and efficient," no VC funding, and user-driven growth philosophy, he has built it into one of the fastest-growing giants in the crypto industry in recent years.

However, while Hyperliquid is one of the most successful projects in this cycle with "Chinese ancestry" involved, it's difficult to view it as a continuation of the influence of Chinese entrepreneurs. This is because the entrepreneur is almost never active within the Chinese community, projecting predominantly Western values and ideas, and rarely expressing himself in Chinese. The rise of Jeff and Hyperliquid highlights the fact that in this new cycle, Chinese ancestry can still exert global influence, but only if it integrates into the mainstream cultural system, rather than relying on old Chinese entrepreneurial paths. If you depend solely on one cultural system, you can only become a regional leader, unable to achieve outstanding results in the globalization process.

In fact, many of the well-known Chinese projects that have become leaders in the field this cycle are founded by people with diverse cultural backgrounds, who have studied in Europe and America at least during their university years. For example, Sean Ren, founder of Sahara, Yu Hu, founder of Kaito, and Erick Zhang, founder of BuidlPad, have had extensive experience in Europe and America, which has played an important role in their development.

In fact, entrepreneurs from diverse cultural backgrounds are indeed more sought after in the crypto industry. For example, the founders of Ethereum, Solana, and Binance, Changpeng Zhao, all immigrated to North America from China and Russia during their childhood. The clash of different political systems and cultures enabled these entrepreneurs to realize the value of blockchain in empowering individual sovereignty earlier and to take action quickly. They would consider cultural inclusivity as a key consideration in team building, resource integration, and daily operations, and would ultimately be more likely to gain favor with users from different regional cultural backgrounds.

The borderless nature of encryption, coupled with the regulatory and profit-driven demands of various countries, will likely lead to a prolonged period of conflict and adjustment that will shape the development trend of the encryption industry. While Chinese entrepreneurs do face increasing challenges amidst multiple conflicts between the US and China and the mainstreaming of the encryption industry, the current state of affairs for Chinese entrepreneurs may no longer be the primary concern. The real question is: as hype and narrative bubbles recede, who will continue to invest in the long-term value of decentralized technology and redefine the industry's direction through real products and verifiable innovation?

The core competitiveness of the future industry landscape will depend more on whether the founding team possesses cross-cultural collaboration capabilities, long-term technological investment, and an understanding of institutional mechanisms and organizational resilience in the face of regulatory uncertainty. Regardless of their cultural or national background, those who can sustain their efforts in these dimensions are likely to become the true beneficiaries of the next cycle. In other words, the key to success in the crypto industry has never depended on "where they come from," but on "what they can accomplish."