country. Wang, who spends a lot of time
in New York these days trying to get Loopring established in the US crypto community, says that if trading digital assets
on a blockchain becomes a widespread
practice, it will be harder for a country
such as China to block it. “Shutting it out
will reduce [a country’s] international
competitiveness,” he says.
From “air tokens” to serious sales
China’s September crackdown also
included a ban on ICOs, the crowdfund-
ing schemes based on crypto-tokens (see
“Down with ICOs; long live IPOs,” p. 78).
In China as elsewhere, these had acquired
a shady reputation. Companies looking to
raise funds quickly were selling digital
tokens or “coins” that were supposed to
buy access to some product or service in
the future, but they often had no way to
fulfill these promises. A Chinese term
emerged: kongqibi, or “air token.”
The ICO ban suppressed this digital
crowdfunding, but it didn’t address the
root of the problem. Illegal fund-raising of
all kinds has thrived in China because the
formal banking sector still favors large
corporations and state-owned enter-
prises. Smaller firms and entrepreneurs
rely on a shadow banking sector to meet
their needs for financing.
But though using token sales to raise
funds is now illegal, merely issuing a
digital token isn’t explicitly prohibited.
Despite the ICO ban, therefore, a few
people are forging ahead with token
One company at the forefront of this is
Beijing-based Spectra Ventures, founded
about a month after the crackdown in
September. The founders, Iris Zhang and
Aaron Chen, have worked in investment
banking and China’s cryptocurrency community. Using their experience to evaluate both companies that want to issue
tokens and the buyers of those tokens,
they advise the companies on how to price
the tokens, how many to issue, and how to
get listed on cryptocurrency exchanges.
To get around the restrictions on token
sales, Spectra doesn’t engage in crowdfunding from Chinese retail investors but
only from established digital-currency
funds registered overseas.
It’s common for a project to raise
10,000 to 40,000 ether (Ethereum’s cryptocurrency) within a week, says Iris Zhang.
At the exchange rate in early April, that
was worth about $4 million to $16 million.
Projects that have sold tokens through
Spectra Ventures include an app for soccer
fans and an instant-messaging app that
allows users to transfer cryptocurrencies
to each other.
These activities may appear to go
directly against the Chinese government’s
orders. But in a sense, they may be what
Chinese officials wanted to see.
In their September edict, the authori-
ties talked about “avoiding market chaos,
strengthening the education of investors,
and collectively safeguarding the nor-
mal financial order.” But China doesn’t
have a fundamental aversion to digital
currencies; in fact, the central bank is
developing its own fiat digital currency.
“A digital currency will bring about a new
financial ecosystem,” says Shenglin Ben,
dean of the Academy of Internet Finance
at Zhejiang University. The purpose of the
crackdown, he says, was to curb excessive
speculation and give the authorities time
to upgrade their regulatory capabilities.
Some of the centralized cryptocurrency exchanges that China banned last
year still exist—they have simply set up
servers abroad—and up until mid-March
their websites were accessible in China.
Since then they have been blocked, though
Chinese users can still access them via
virtual private networks. The one used
by Chuan Zhang and his investor friends,
Huobi.com, is among them.
After the panic sell-off last year, Zhang
and his friends reinvested whatever savings they had left in cryptocurrencies
again. This time, they do not plan to sell.
Before the September ban, they had seen
cryptocurrency as a way to prop up their
fragile financial well-being. Now it has
become a faith. “It’s something that cannot be suppressed,” says Long Zhang, 30,
a close friend of Chuan Zhang’s. “It will
definitely be worth a lot in the future.”
Yiting Sun is a freelance journalist based