How can crypto companies bridge the cultural gap? A brief discussion on the information gap between cryptocurrencies in China and the United States

Original title: Bridging Cultural Gaps in 2021: Crypto in China and the US

Original source: Coindesk

Original translation: 0x33

According to BlockBeats, on December 19, Coindesk interviewed Mable Jiang, executive director of Multicoin Capital, and asked her to talk about the different investment concepts of Chinese and foreign users due to cultural differences as one of the heads of investment institutions. As a three-year-old research-driven crypto fund, Multicoin Capital has a solid logic in laying out infrastructure and exploring potential projects.

The following is the original content translated by BlockBeats:

The information and cultural gap between China and the U.S. is huge. As a Chinese citizen living in Hangzhou and also working for a U.S.-based investment company, I have the privilege to experience this firsthand.

In the crypto market, information is split in two across the Pacific Ocean, and actionable information cannot be transmitted as fast as data packets on fiber optics. While you may be familiar with various social channels in the West: Telegram, Twitter, Discord, Medium. But on Chinese social software, such as WeChat, Weibo, Bihu and other channels, a completely independent crypto universe exists and operates. This is just the point. In addition, cultural, time zone and language barriers also exacerbate the lack of overlap between the two markets.

How information flows, how relationships and bonds between parties differ, how different social norms create friction, and different consumer behaviors all combine to create unique cryptocurrency market structures in the United States and China.

Going forward, Chinese culture’s high need for interpersonal trust, preference for mobile user interfaces, WeChat information flows, and “pragmatism” will continue to hold. However, as cross-cultural communication channels increase, Chinese and American crypto operators should be able to understand the nuances between the two cultures and market their services more effectively in one market.

Understanding Trust

One of the most important differences I have observed between China and the U.S. is how market participants build and develop trust with each other. The Chinese prefer to trust people they know or interact with directly, while Americans tend to trust brands.

In our investment thesis for dForce, I pointed out that one of its unshakable moats is its local business connections and community channels. dForce founder Yang Mindao is a respected influencer in the local community, and due to his prominent position, he is able to build strong relationships with key players in the Chinese crypto ecosystem. Maintaining personal relationships with local community leaders, crypto operators, and key distribution channels in China is an unquantifiable but undeniable advantage.

DeFi protocols are not businesses. They are, at least in theory, permissionless, leaderless organizations. Still, Chinese users expect chat rooms to provide customer service from real people who can explain how these protocols work in real language. That’s why senior employees or founders of platforms like Binance, Huobi, and OKEx often appear in WeChat groups to answer customers’ questions.

These unique requirements of trust affect the way business is done in China. For example, unlike in the United States, where prime brokerage typically refers to three separate business lines: lending, trading, and custody, most prime brokerage firms in China emphasize lending and asset management services.

Almost none of the major crypto institutions in China offer custody as a standalone service, knowing that Chinese people prefer to manage their own private keys rather than entrust (trust) them to others. Chinese “whales” (those holding large positions) closely guard all their assets, sometimes even watching only on their phones.

On the other hand, in the United States, many cryptocurrency institutions entrust their funds to custodians regulated by the Securities and Exchange Commission (SEC), and in fact they are required to do so. They do not want to take the risk of custody themselves because, in their view, the "system" is more trustworthy. Once again, Chinese users are more convinced of the concept of "Not your key, Not your coins" (without private key coins are not yours) because Chinese culture contains higher trust requirements. Entrepreneurs need to understand these subtleties in order to compete most effectively on a global scale.

For these reasons (and many others), I typically strive to help our non-Chinese portfolio companies hire people who speak the local language in order to connect with users and potential business partners on a human level.

Understanding user preferences

User behaviors and preferences vary widely across markets, leading to localized product strategies for leading companies in each region.

Smartphones dominate internet use in China. Even some of the most complex derivatives trades are executed on smartphones. This is in stark contrast to the situation in the United States and other Western countries, where traders prefer to log in on their computers.

For a significant portion of Chinese people, their mobile phone is their first and only computer. Because users prefer (and rely on) mobile interfaces, these mobile apps naturally compete with each other for user retention. Under this pressure, the most successful apps have grown into super apps, such as WeChat and Alipay, which allow customers to solve all their problems in one place.

Although crypto is a borderless phenomenon, user behavior is still largely influenced by ingrained user behavior from the Web 2.0 era. For example, exchanges in Asia are more likely to become super applications that provide cross-product services. Binance is a good example; over the past two years, the company has been "blitzking" and expanding its business from basic spot and futures trading to more complex options trading to new staking services, mining pools, and fiat currency OTC applications. Binance attempts to provide all crypto financial services.

Coinbase is another typical representative, reflecting the Western business strategy, launching custody, Prime, Pro and retail to provide different business lines and products.

Understanding user preferences and positioning remains a powerful differentiator. This will not change in 2021. Entrepreneurs need to localize their strategies in China and the United States.

Understanding Information Flow

Platforms such as Twitter, Discord, Telegram and Medium in the United States are welcoming to those who enjoy permissionless, anonymous online participation and the (relatively) free flow of information across platforms. It’s no secret that the main venue for encrypted information exchange in the United States is Twitter: users can comment publicly and freely follow whomever they like.

China is completely different. The main platform is not Weibo (China's version of Twitter) or Bihu (an encrypted local discussion forum similar to Medium). Instead, it is WeChat. As a heavyweight application, WeChat's information flow is closed. This makes WeChat a microcosm of information that is completely derived from internal information. All communication processes are completed in WeChat, WeChat conversations, WeChat embedded hyperlinks, WeChat Moments, etc.

Therefore, the barrier to building a community in China is greater because everyone has to use WeChat, and it is not easy to form a large WeChat group.

For example:

The maximum number of people in a WeChat group is 500;

The QR code has an expiration date;

When the group size exceeds 200 people, people cannot join via QR code, and the team leader needs to manually invite people in.

But on Twitter, anyone can easily follow or unfollow someone else. In a WeChat group, especially those with fewer than 100 people, members face social pressure to “quit the group.” And some influencers in China even monetize their “private domain traffic” by charging a fee to join the group, which gives its members a special sense of community (and creates a perceived cost to leave).

However, WeChat’s tighter binding creates a more level playing field for whales, institutions, and retail participants. In the United States, a “thought leader” with hundreds of thousands of followers on Twitter does not necessarily follow all of his or her followers, so he or she cannot see all the feedback. This one-way relationship effectively divides the line between cryptocurrency influencers and professional institutions and retail participants.

However, on WeChat, representatives of institutions and retail businesses are often grouped together in the same group. This “flat” setup essentially enables two-way communication between professionals and retail investors.

Projects attempting to market in China or the United States must understand the differences in these information flows. In China, the media is controlled and influenced by contractual relationships. In the United States, the media is "powerful." "As encryption becomes more important, more communication channels will emerge and the structure of information flows will continue to fragment.

Understanding Pragmatism and Idealism

Arthur Hayes of BitMEX once joked that good marketing to Chinese users could make any token look promising. His joke wasn’t entirely tongue-in-cheek; it reflected a deeper reality in the crypto capital markets.

While Vitalik garnered huge support in China in the early days of Ethereum, today Ethereum maximalism is declining in China relative to the U.S. This is in stark contrast to crypto Twitter, where Ethereum maximalists enthusiastically promote Ethereum.

“The products and protocols they’re building are becoming more local and more global at the same time.”

The Year Ahead

As we head into 2021, crypto entrepreneurs must realize that the products and protocols they are building are becoming more localized, but also more globalized. The United States and China are clearly the two most critical markets, and winning these two markets means unprecedented success.

Two years ago, the idea of ​​listing in both the U.S. and China would have been unthinkable. Today, entrepreneurs absolutely must develop and execute unique strategies for both the U.S. and China, or risk being left behind.

While more and more channels are being built between China and the U.S., the cultural moats and user behaviors I described above show no signs of changing materially in the short term. As companies plan to deploy capital next year, they will want to recruit teams that understand and appreciate the opportunities presented by cultural differences and view the distance between China and the U.S. as a unique advantage to be exploited rather than an obstacle to global expansion.

Such a cultural bridge is easier to describe than to build. The winning strategy will be unique and difficult to replicate: no single template can guarantee constant or increased market share.