Web3 developers have flourished quietly despite China’s cryptocurrency crackdown, but more are heading overseas to locations such as Hong Kong and Singapore for funding and development.
« : »Jensen Li, a Beijing-based former developer at ByteDance, meets other like-minded enthusiasts regularly at Metaspace, a Web3-theme cafe located in the centre of Haidian district. He walked away from a job with an annual salary of 850,000 yuan (US$120,000) offered by TikTok’s parent company two months ago to found 1435Club, an online space connecting Chinese talent with Web3 opportunities. “The exponential growth of Chinese internet companies in the past decade is unlikely to be replicated since the current market is already highly saturated, and the macro environment friendly to innovation and economic boom is now history,” Li said. China intensified its crackdown on cryptocurrencies in October 2021, saying such transactions were illegal and liable for prosecution. Virtual tokens such as bitcoin and ether were not legal tender, the central bank said, and thus “should not, and are not capable of being circulated in the market and used like currencies”. Despite this, transactions related to digital assets have continued within its jurisdiction – and some have even boomed. ‘No speculation’: FTX meltdown puts focus on Singapore’s digital asset stance From June 2021 to July 2022, crypto transactions totalled US$220 billion in China, the fourth highest worldwide, and top in East Asia, according to blockchain analytics firm Chainalysis. Its 2022 Global Crypto Adoption Index, a comprehensive metric measuring countries’ usage of crypto services, showed China ranked 10th globally, up from 13th place last year but down from fourth in 2020. The report also said China’s crypto ban last year had been either “ineffective or loosely enforced”. Web3, a third generation of the World Wide Web, is the vision for a new and better internet with greater utility for its users. It is currently a work in progress. Web3 is often closely linked to cryptocurrency, with tokens given a form of digital identity beyond economic value. Web3’s appeal mainly stems from the promise of allowing users and builders to claim fair ownership over their data and intellectual output, which would thwart attempts by Big Tech to encroach on individual freedoms and privacy. In China, Web3’s close ties to cryptocurrency are viewed as a threat to financial stability and projects requiring users to swap cryptocurrencies have raised regulators’ eyebrows. To get around the rules, Web3 projects often use terms such as “metaverse” and “digital collectibles” to evade scrutiny. Nascent fields such as non-fungible tokens (NFTs) and GameFi, a model combining decentralised finance with video gaming, also remain a murky territory shielding crypto start-ups from regulatory compliance. Although China’s leadership in 2019 vowed to adopt blockchain, the underlying technology boosting the Web3 revolution, and high-level regulators earlier this year also emphasised the strategic significance of developing the new generation of the internet, the goal has always been consistent – to create a unique version of Web3 with Chinese characteristics without the involvement of cryptocurrency. This has helped prompt domestic Web3 developers to move their entities abroad while still maintaining some operations in China. “Most China-based Web3 start-ups like 1435Club look forward to relocating to Singapore or Hong Kong,” Li said, adding that developing the online community into a global platform would help attract funding from overseas investors. The reason is simple: both financial hubs have shown no intention to impose an outright crypto ban in the foreseeable future. Hong Kong’s latest measures in welcoming crypto investments and greenlighting token offerings have boosted its future outlook as Asia’s crypto hub. Meanwhile, Singapore has emerged as a candidate for its mature capital markets and relatively friendly stance on cryptocurrency, though the country’s top financial regulator, the Monetary Authority of Singapore, recently proposed to restrict retail investors from accessing highly volatile digital assets. Local authorities have for years warned retail investors about the risk involved in cryptocurrency and the proposal for stricter rules comes in the wake of the collapse of the high-profile Singapore-based hedge fund, Three Arrows Capital, over its involvement in the beleaguered stablecoin project, Luna. From Web2 to Web3 For China’s largest tech companies, the good old days seem to be over. Factors such as the ongoing crackdown targeting business-to-consumer (B2C) tech giants, extended Covid-19 restrictions, and rising geopolitical tensions have caused an unprecedented bloodbath to China’s largest public-listed companies.
