Bet vs. Buy? The ICO Market Has a Serious East-West Divide

A New York event last week showcased how investors in Asia and North America have divergent views on how best to invest in ICOs.

AccessTimeIconMay 24, 2018 at 4:01 a.m. UTC
Updated Sep 13, 2021 at 7:58 a.m. UTC

In the U.S., initial coin offerings (ICOs) are about ideas. In the Asian market, they're about returns.

"At the very beginning, the information coming from Asia to the US was very limited. We didn't know what's really going on," Zhuling Chen, co-founder of Aelf, a cloud computing startup out of Singapore, told CoinDesk.

So the Asian market took off on its own, informed by the ecosystems around bitcoin and ethereum but also distinct from them, such as when major Asian banks launched distinct efforts starting in early 2016. Some of the differences between the two markets became clearer as CoinDesk spoke to investors and entrepreneurs during Blockchain Week in New York City.

If one common theme ran through our conversations about Asia, it was this: retail and institutional investors all want returns to realize much more quickly than investors do in the U.S., which may help explain why it has always had a vigorous ecosystem of exchanges.

Said more frankly, Jason Fang, managing partner at Sora Ventures, put it this way during a panel at Token Summit III: "Asians love to gamble."

As he told CoinDesk, they don't want long lockup periods like so many Western projects expect. Instead, they want to see tokens get released, listed and realize some of the gains that come from retail investors and market makers buying into a new coin.

Investors in Asia move fast into getting coins listed and sell them as they go up, because they know there is going to be an uptick after listing as market makers enter new tokens, but his firm avoids exiting to fiat.

"We're money in, money out in crypto," he said.

But Fang wasn't alone in saying Asian investors want a good shot at a quick return.

Ricky Li, a co-founder of the new blockchain asset management company Altonomy (and an alum of one of the largest crypto funds in Asia, FBG Capital) agreed. He told CoinDesk that one of the Asian market's problems is a tendency for investors not to diversify their portfolios over time.

"U.S. and Europe ICO project teams are more well invested in terms of financial knowledge," Li told CoinDesk. Chinese companies and their neighbors will raise funds in ether and largely maintain those positions, sometimes failing to lock in gain or riding volatility through their whole portfolio, he said.

His company helps funds adjust their portfolios so that if there's a massive loss in one asset it doesn't threaten their solvency.

Entrepreneurs also illuminated other facets of the East-West divide in crypto, such as why Asian projects mirror Western protocols and the China ICO ban. Still, there was a strong willingness for both camps to find common ground.

Nick Tomaino, of VC firm 1confirmation, told Token Summit attendees:

"It could be argued that Asia is kind of the most important part of the world in terms of cryptocurrency."

Local technology

Language helps to explain another point of relativity in the crypto space: the fact that the market has copied existing protocols from the U.S. market that could theoretically work everywhere.

During the panel, Fang argued that as buzz grew around ethereum, there wasn't documentation for the software in languages like Chinese or Korean. So, Asian-facing protocols launched and now they have strong communities built around them.

Community is key to all these early efforts and localizing can help some projects get there.

"The best way is to have your own project that's local," Li concurred. "That's very appealing to investors in China culturally."

In China, the web has history of localization. The state banned the Western internet which enabled the Chinese entrepreneurs to create a mobile business that largely started out by imitating Western products that were a proven success.

Now, though, with the Chinese ban on ICOs, Chinese firms have been forced to take a different approach.

"There's no domestic market in China so all the companies learned to do globalization," Chen explained. He called it something of a mixed benefit of the ban.

But still the companies remain focused on business results.

"The whole thing about tokenization, is you create incentives," Li explained. In other words, a project raises money to do its work. It has those funds to support its staff and an incentive to deliver a product that people want to use so the tokens price will rise again after that first sell-off, as people start to use it. "I wouldn't call the shorter turnaround necessarily a bad thing," he said.

What it does mean, he granted, is more "paper projects" in Asia and more work for those interested in ICOs to discern which ones are real and which aren't.

Fang agreed that shorter horizons can still work over time. "It will always be relative, not absolute," he said. Plus, Asian tech companies are less hesitant about getting into tokens. Multiple Asian investors told us they liked "reverse ICOs," where existing tech companies sell a token.

And sometimes entrepreneurs in one country will launch a localized version of another country's creation for more structural reason. Abhishek Pitti, founder of Nucleus Vision, a $40 million ICO out of India that's making what he called the "Neo of India" explained that it localized for a more structural reason.

"The Indian government doesn't want to use any international protocols for security purposes," he said.

New markets abroad

At a certain point, though, a mature project has to expand beyond the geography where it originated, and that reality is part of what brought so many entrepreneurs to New York for Blockchain Week.

"The most important thing to us is trying to hire the most talented guy you can find," Chen said. Beijing he said, is strong on entrepreneurs, but needs other skills, particularly good cryptographers. "Most of them, I think they are in the U.S.," he said on the panel.

"The general view is that a lot of American companies are pushing the boundaries of technological advancement," Chen said. "In China, it's slightly more balanced. More companies are looking from a business point of view."

Fang summed up the West more succinctly: "I think right now people are betting on professors."

Plus the U.S. has a giant pool of liquidity. "It's about the community engagement," Li argued. "If they want a project to be successful, you have to be global. Even NEO is very well received globally."

Pitti made the same argument for India, saying that blockchain is still basically unknown there. If Asian capital comes online, it will be another massive pool of liquidity to stabilize the industry with. Still, there's even more liquidity in the U.S., so more firms seem to be expanding here first.

But it's not the only place. From the panel, Vansa Chatikavanij, managing director of OmiseGo, said her firm's mission is to smooth financial frictions, which makes the West a lower priority. She specifically mentioned Vietnam as an opportunity, for example.

She said, "We are providing a wallet SDK as part of our solution. What we need local partners to do is actually implement it themselves," because of national laws about money transmission.

But everyone is looking for users, wherever they can best be found; it's a numbers game, Li explained:

"The retail customer is key to the success of the project. The key to the pricing. The key to opinion."

"The Asian Crypto Landscape" panel at Token Summit III in NYC. Left to right: Nick Tomaino (1confirmation), Vansa Chatikavanij (OmiseGo), Gordon Chen (FBG), Jason Fang (Sora Ventures) and Zhuling Chen (Aelf); photo by Nik De for CoinDesk.


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