Uncovering Dragonfly Capital: The Internet OG Bridging the Eastern and Western Crypto Worlds

Author: ChainLink Finance

On March 18, senior officials from the Chinese and U.S. governments held their first meeting since President Biden took office, providing a great opportunity to grasp the long-term relationship between the two countries. Unfortunately, the alliance is almost non-existent.

The meeting aimed to make progress on issues such as trade disputes. However, the U.S. Secretary of State did not promote a new economic partnership but instead harshly criticized China on issues related to Hong Kong and Xinjiang, while Chinese diplomats condemned the U.S. for its "deep-rooted" racism and condescending attitude. The stock prices of Chinese companies listed on U.S. exchanges fell, and most attendees left the meeting feeling pessimistic.

However, where political failures exist, the world of cryptocurrency is thriving. Many U.S.-based projects are focusing on the Chinese market, and numerous crypto funds are paying attention to Chinese entrepreneurs. This fully demonstrates the borderless nature of crypto technology. San Francisco-based Dragonfly Capital is a prime example, aiming to bridge the East and West in cryptocurrency.

On March 26, Dragonfly Capital announced that its second fund had completed fundraising, raising an astonishing $225 million. The fund will focus on decentralized finance, non-fungible tokens, Ethereum scalability solutions (e.g., Layer 2), and centralized financial infrastructure.

The scale of Dragonfly Capital's second phase is more than twice that of its first fund, attracting many prominent partners such as Sequoia China, OKEX, Huobi, Bitmain, and Bybit.

Next, we will explore Dragonfly's East-West strategy and the potential impacts of the upcoming coupling in cryptocurrency.

Connecting China's Internet OGs to the Crypto World

If there is one word a businessperson in China needs to know, it is "guanxi," which means "connections" in Chinese. Just as Silicon Valley's strength comes from a tight-knit, concentrated network of capital, technologists, and marketers, China's crypto circle also has its own network of connections.

At the center of it all is Feng Bo, the managing partner of Dragonfly.

Feng Bo is a legendary figure tracing back to the early days of the Chinese internet. He founded the Chinese operations of the high-tech investment bank Robertson Stephens and is known for discovering the origin of China's Twitter, Sina Weibo.

Feng Bo's first crypto deal occurred in 2014 when he invested in the Beijing-based cryptocurrency exchange OKEX. Through observing OKEX, Feng Bo saw the rise of the crypto economy, replacing the traditional internet economy. With his intuition, he founded Dragonfly Capital in 2018, supported by founders from Baidu, Meituan, Meitu, Sequoia China, and ZhenFund.

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

At the Dragonfly Capital 2019 summit, Feng Bo showcased his ability to gather China's most important tech entrepreneurs and venture capitalists. There, he brought together many crypto celebrities, such as Li Lin from Huobi, Xu Mingxing from OKEX, Wu Jihan from Bitmain, Shen Nanpeng from Sequoia China, Wang Xing from Meituan, Fred Ehrsam from Paradigm, and of course, Vitalik.

Feng Bo, Shen Nanpeng, Feng Bo, Vitalik, Wang Xing, and other big shots

This was not only a gathering of East and West but also a meeting of Web 2.0 and Web 3.0.

Feng Bo opened the crypto party to internet OGs, allowing them to taste the flavors of the new world. Instead of founding a fund on his own, investing in Feng Bo is more cost-effective.

The Bridge Behind Dragonfly

Given the backgrounds of Dragonfly's LPs, it is natural to propose the idea of East-West integration. After all, while cryptocurrency has a borderless nature, there are significant differences in how the two parts of the world operate.

First, China is more focused on mining and mining-related financial instruments. China also has a long-standing retail base that enjoys airdropping tokens (equivalent to China's junk coins) and has fallen into Ponzi schemes like PlusToken. China is also known as the ocean where early whales of the Ethereum ICO era resided. Lastly, China is home to mainstream cryptocurrency exchanges like Binance, Huobi, and OKEX.

You might think that Dragonfly's perspective would lead it to invest more in Chinese crypto companies, but that is not the case. A closer look at Dragonfly's flagship portfolio reveals that the company's Asian theme does not solely focus on Asian 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 bridge is Dragonfly trying to build?

The bridge of communication is not only about bringing much-needed global capital to Chinese entrepreneurs but also about bringing insights from the Chinese market into global projects. China operates in its own way; understanding consumers and how business is conducted there can put many projects ahead.

More importantly, for projects that rely on Eastern audiences, having an investor focused on Asia is crucial. One example that comes to mind is dYdX, a crypto derivatives DEX. Due to U.S. restrictions on trading crypto derivatives, dYdX cannot sell its derivatives to Americans. So what do they do? They turn East.

Another important part of this bridge is our good friend "guanxi." In real life, connections are crucial, and they are even more important in cryptocurrency. As the crypto ecosystem evolves, those with good connections will be able to introduce new capital, new projects, and new talent. They will have enough funding to launch a new DeFi yield farming project and help build WeChat communities to educate retail investors. This is the real help that Western projects need.

Finally, one of the focuses of Dragonfly's second fund is centralized finance. This explicit strategy is unique to China, as the Chinese crypto community pays much less attention to decentralization compared to their Western counterparts. Instead, they prioritize usability. Dragonfly's understanding of the Chinese community can help them find the best CeFi projects in China or bring Western CeFi projects to Chinese audiences.

From West to East to East to West

Of course, Dragonfly is not the only cryptocurrency company focusing on Asia. An increasing number of Western funds are beginning to shift East. In 2019, Multicoin Capital made headlines by announcing the hiring of Mable Jiang to lead its operations in China. Two years later, we saw Jiang helping portfolio companies like Solana build communities by speaking at conferences.

After the two companies easily struck a deal, Multicoin also received a strategic investment from Binance. It is hard to imagine such close ties without investors in China.

We should also not forget that local Chinese cryptocurrency companies are also making inroads into Western communities. Fenbushi has deeply integrated itself into the Filecoin ecosystem. NGC, SNZ, and many other ICO funds from after 2017 have made significant bets on Polkadot and NEAR. Beijing-based Zhongguo Huanqiu Shipping is a well-known supporter of Solana.

Funds are becoming increasingly globalized without losing their local foundations. A good fund can attract global capital, but funds with advantages in specific markets are attracting the best entrepreneurs.

As the entire industry moves towards Web 3.0, East and West in cryptocurrency will become more integrated. Competition among funds will also intensify, as each fund competes to secure the best projects. While the overall market share of Web 3.0 is growing, those with both Western and Eastern flavors will see substantial returns in the coming years.