A March 18 meeting between top government officials from the US and China—the first since President Biden took office—was a pretty good chance to take the pulse of the long-standing relationship between the two nations. Sadly, the pulse was almost nonexistent.

The conference was intended to make progress on issues such as trade disputes. But rather than spurring new economic partnerships, the U.S. Secretary of State harshly criticized China over Hong Kong and issues related to Xinjiang, while Chinese diplomats rebuked America’s “deep-seated” racism and condescending attitude. Chinese companies listed on US exchanges saw their stocks sink, and most people left the meeting feeling pessimistic.


But the crypto world is succeeding where politics has failed. Many US-based projects are eyeing the Chinese market and many crypto funds eyeing Chinese entrepreneurs.This speaks volumes about crypto’s borderless nature. One place that epitomizes this is San Francisco-based Dragonfly Capital, a fund that was designed to bridge crypto east and west.

On March 26, Dragonfly announced the completion of its second fund, which raised an impressive $225 million. The fund will focus on decentralized finance, non-fungible tokens,  Ethereum scalability solutions such as Layer 2, and centralized financial infrastructure.

More than twice the size of its first fund, Dragonfly Fund II also brought in a slew of shining partners such as Sequoia China, OKEx, Huobi, Bitmain, and Bybit.

This week’s da bing looks into Dragonfly’s east-meets-west strategy, and what that upcoming crypto coupling might produce.

Connecting Chinese Internet OGs to the crypto world 

If there’s one word business folks need to know in China, it’s “guanxi” which means “connections” in Chinese. In the same way that Silicon Valley’s strength derives from being a tight, concentrated network of money, technologists and influencers, China’s crypto circle has its own web of connections. 


Sitting in the center of it all is Bo Feng, Managing Partner of Dragonfly. 

Feng is a legend who dates back to China’s early Internet scene. He is best known for launching the China business of Robertson Stephens, a high-tech investment bank, and discovering Sina Corp, home to Weibo, China’s Twitter equivalent. 

Feng’s first crypto deal was in 2014 when he invested in OKEx, a crypto exchange that started in Beijing. Through the eyes of OKEx, Feng saw the rise of the crypto economy replacing the traditional Internet economy. Following his instinct, he launched Dragonfly capital in 2018 backed by the founders of Baidu, Meituan, Meitu, Sequoia China, and Zhenfund. 

If you are not familiar with these names, think of them in the same way that you’d think of the  founders of Google, Uber, A16Z and USV. 

Feng’s ability to convene China’s most important tech entrepreneurs and venture capitalists was seen during Dragonfly Capital’s 2019 summit. There, he gathered crypto celebrities such as Leon Li from Huobi, Star Xu from OKEx, Jihan Wu from Bitmain, Nanpeng Shen from Sequoia China, Xing Wang from Meituan, Fred Ehrsam from Paradigm, and of course Vitalik, the God of them all. 

Feng and Buterin and the gang in China, via Chain News.

It was not only a party where east met west, but also a party where Web2.0 met Web3.0. 

Feng opened the crypto pie to the Internet OGs and gave them a taste of the new world. Rather than starting a fund on their own, it was much more cost-efficient to invest in Feng.


Bridging what?  

Given Dragonfly’s LP profile, it’s only natural to come up with a thesis of converging east and west. After all, despite crypto’s borderless nature, there’s a huge difference between how the two parts of the world function. 

To start with, China has a much heavier focus on mining and mining-related financial instruments. China also has a historically large retail base, who like to pump and dump air tokens (Chinese equivalents of shitcoin)  and fall into the realm of Ponzi schemes, such as PlusToken. China is also known as the sea where early whales from the Ethereum’s ICO days reside. Lastly, China is home to major crypto exchanges such as Binance,Huobi and OKEx. 

You would think that Dragonfly’s thesis would prompt it to invest more in crypto firms based in China, but that’s not the case. A close look at Dragonfly’s flagship portfolio reveals that the firm’s Asia thesis does not lie in exclusively identifying Asia-based projects or entrepreneurs. Most of its portfolio projects are well-known western projects such as Maker, Compound, Near, Matter Labs, Celo, and UMA.

So, what is Dragonfly trying to bridge?

The bridge isn’t so much about bringing much-needed global capital to Chinese entrepreneurs as it is about bringing Chinese market insight to global projects. China operates in its own way; being able to provide insight into consumers and how business is done there can give many projects a head start. 

More importantly, for projects that rely on Eastern audiences, having an Asia-focused investor is key. One example that comes to mind is dYdX, a crypto derivative DEX. Since trading crypto derivatives are banned for Americans, dYdX cannot market its derivative products to Americans. So what can they do? Go East. 

Another big part of this bridge is our good old friend Guanxi. Connections matter in real life, and they matter even more in crypto. As the crypto ecosystem grows, those who are well connected will be able to bring in new capital, new projects, and new talent. They will have sufficient capital to pump a new DeFi yield farming project and help establish WeChat community to educate the retail. This is the kind of real help that western projects need. 

Lastly, one of Dragonfly’s fund II focuses is on centralized finance. Such an explicit strategy is distinctly Chinese because compared to its western counterparts, the Chinese crypto community cares much less about decentralization. Instead, they opt for usability. Dragonfly’s understanding of the Chinese community could help them identify the best CeFi projects in China, or bring those CeFi projects from the west to Chinese audiences. 


West to east and east to west

Dragonfly isn’t the only crypto capital that has an Asian focus of course. Increasingly, western funds are moving east. In 2019, Multicoin Capital made a high-profile announcement that it was hiring Mable Jiang to lead its efforts in China. Two years later, we see Jiang helping portfolio companies such as Solana in its community building efforts, by giving talks at conferences.

Multicoin also receives strategic investment from Binance, after the two got cozy doing deals together. It would be hard to imagine such a close tie without having an investor based in China. 

Let’s also not forget that home-grown Chinese crypto firms are also making inroads to the western community. Fenbushi has deeply embedded itself into the Filecoin ecosystem. NGC, SNZ and many other post-2017 ICO funds have made heavy bets in Polkadot, and NEAR. Beijing-based Sino Global is a well-known Solana advocate. 

Funds are becoming increasingly global without losing the foundation of their home base. A good fund can attract global funds but those that have a niche in a specific market are attracting the best entrepreneurs. 

Crypto east and west will become more integrated as the whole sector moves toward web3.0. Competition among funds will also intensify as each one competes to get the best projects. Though the overall web3.0 pie is growing, those who can get both western and eastern flavors, will see a dragon-ish return in the years to come. 

Do you know? 

“内卷” that literally means “inside roll” in Chinese and denotes a constrained, self-destructive kind of internal growth. It’s taken from an agricultural term involution, which refers to a stagnating stage of agrarian society wherein competition is so intense that every farmer becomes worse off. 

Involution has been used by Chinese city dwellers to complain about modern life. Just because some parents can give their children private tutors, now every parent must provide private tutors. Just because some Internet companies are offering free coupons, now every Internet delivery company must provide the same. 

In crypto, the community uses the term to describe the overheated competition between different public blockchains in developing killer use cases. The more that is developed, the more competition it faces, and the more fragmented the ecosystem becomes. 


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