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Global crypto firms turn to Hong Kong for refuge — and opportunity | TechCrunch

May 7, 2024 2:23 AM0


With U.S. regulators continuing to ramp up their scrutiny of crypto, startups and founders in the space are looking overseas to find friendlier climates to support their growth.

One such destination is Hong Kong, which, seeking to restore its status as a financial hub, is banking on favorable crypto regulations to draw a fresh raft of entrepreneurs, technologists and investors. So far, its strategy seems to be working.

In mid-April, Hong Kong’s annual web3 festival drew in over 50,000 attendees. There were noticeably more non-Chinese attendees compared to last year, when the event felt like a gathering of crypto refugees fleeing mainland China’s restrictive policy. At this year’s edition, buttoned-up officials from the city listened attentively to scruffily dressed founders battling jetlag. While she did not make it to the event in person, Cathie Wood, the billionaire founder of Ark Invest, delivered a speech via video. And Vitalik Buterin, the nomadic founder of Ethereum, made a last-minute appearance.

It evoked a sense of deja vu: in the industry’s infancy, Hong Kong was a major hub for crypto firms run by foreign entrepreneurs, including the likes of FTX, Crypto.com and BitMex. Like other jurisdictions around the world, the city clamped down on crypto activities to safeguard investor interest as market volatility was spiraling out of control.

Excitement around Hong Kong’s web3 scene started to bubble up again last June, when the government made it legal for retail investors to trade crypto. Since then, the city has implemented a series of measures to regulate crypto-related activities, including a sandbox for stablecoin issuance as well as a licensing regime for crypto exchange operators. Following in the footsteps of the U.S., Hong Kong just listed a batch of cryptocurrency exchange-traded funds this week.

These moves are in stark contrast to the U.S. government’s tough stance against crypto businesses. Attendees at the web3 festival, who flew in from the U.S., Europe, the Middle East, India and other regions, expressed their optimism about the momentum in Hong Kong. First Digital’s FDUSD, issued under Hong Kong’s digital asset rules and backed by U.S. Treasury bills, for example, has quickly become the world’s fourth-largest stablecoin by market capitalization.

At the same time, people are mindful of Hong Kong’s limitations as an aspiring crypto hub. For one, it’s a relatively small market of seven million people, and mainland China’s enormous market is going to be off-limits for now at least. Moreover, the rules prioritize investor protection, which can result in higher compliance costs and deter those who favor a more freewheeling environment.

Still, Hong Kong remains one of the few jurisdictions, alongside countries like the United Arab Emirates, Japan, and Singapore, that have shown a clear commitment to cryptocurrency. As Jack Jia, head of crypto at global payments company Unlimit, remarked: “The fact that Hong Kong is coming up with any crypto regulation at all, just from a reputation and optics standpoint, will attract everyone.”

Open-minded officials

Hong Kong doesn’t actually have the most lenient crypto regulations. Indeed, its scrutiny over exchange operators has pushed its crypto posterchild, HashKey, to seek a license in Bermuda. The world’s largest crypto exchanges, namely Binance, Coinbase and Kraken, are conspicuously absent from the list of 22 applicants for the city’s virtual asset exchange license.

As it turns out, Hong Kong’s greatest allure is its effort to provide regulatory clarity for crypto activities.

“The SEC is notorious. ‘Everything’s a security, but we’re not going to tell you clearly what licensing you need to apply for, and then we might just reject your application anyway,’” said Jia, describing the attitude of the U.S. Securities and Exchange Commission in regulating crypto firms. “There’s no set SEC process. But Hong Kong regulators have put out a process for hearing your opinions.”

Indeed, multiple crypto executives told TechCrunch that they have held closed-door meetings with Hong Kong government representatives. Working to feed real-world data to smart contracts, which are lines of code that execute predefined rules, San Francisco-based Chainlink is in discussions to provide its technology to major financial infrastructure in Hong Kong, said its co-founder Sergey Nazarov.

“People don’t fully realize that the capital markets and crypto are very compatible. In coming to Hong Kong, I found that that compatibility is going to be accelerated here first because the government and the regulators are more open to that compatibility,” said Nazarov, who invited Hong Kong’s Under Secretary for Treasury, Joseph Chan, to speak in a fireside chat with him at SmartCon, Chainlink’s annual conference, in Barcelona last year.

This year, Chainlink is taking SmartCon to Hong Kong at the invitation of the local government, making Hong Kong the first Asian city to host the conference, according to Nazarov.

“The Hong Kong regulator is giving out regulation on stablecoins and regulation on [digital] assets. That means Hong Kong can be a place where assets and payments can reliably function in one system in a regulated way,” Nazarov added. “That’s important, because if things are not regulated, then all of the hundreds or hundreds of trillions of dollars and banks will not migrate.”

Steve Yun, president of Dubai-based TON Foundation, Telegram’s official blockchain partner, shared the sanguine sentiment, saying that Hong Kong might have the biggest competitive advantage over other aspiring crypto hubs as the city “is trying to come up with a very comprehensive framework to make builders and entrepreneurs feel more comfortable and to attract talent.”

Hong Kong’s financial regulations are intricate, but Charles d’Haussy, CEO of Switzerland-based DYdX Foundation, is no stranger to them, having previously headed fintech for InvestHK, the Hong Kong government’s foreign direct investment department.

“The Hong Kong government was very open to crypto in the early days,” d’Haussy recalled. Then came a period of hostility as regulators tried to combat rampant crypto frauds. But “about a year ago or so, I think they understood that there was a new market there, and there should be regulations to make sure that this opportunity was not missed.”

“That’s when you saw the HKMA [Hong Kong Monetary Authority] doing more and more CBDCs [central bank digital currencies], and the Hong Kong SFC [Securities and Futures Commission] issuing crypto exchanges and ETFs licenses,” d’Haussy added.

Access to China

When Hong Kong opened up to cryptocurrencies last year, speculation was rife that mainland China might follow suit. That hope remains distant as China continues to bar its people from trading crypto. Nonetheless, companies are now recognizing Hong Kong’s potential as a gateway to another valuable resource from its neighbor.

While Hong Kong is a magnet for financial talent, its neighbor to the south, Shenzhen, is home to some of the world’s largest tech companies, such as Huawei, DJI and Tencent. Unsurprisingly, crypto firms are capitalizing on the combination of Hong Kong’s friendly regulations and its proximity to developer resources in Shenzhen and other Chinese cities.

One such player tapping Hong Kong’s geographic location is TON Foundation. As part of its effort to become a super app, Telegram is partnering with TON, which enables developers to build blockchain-based lite apps that run on the messenger. During the web3 week, the Foundation held a bootcamp in Hong Kong in the hope of attracting Chinese developers, particularly those who are familiar with WeChat’s mini-app empire.

“Now we are reaching out to regions where they have a high number of developers and entrepreneurs, especially the ones who grew up using some type of mini apps through a super app, and those who participated in the growth of such ecosystem,” said Yun.

A16z-backed Aptos, for example, hosted a three-day hackathon in Shenzhen back in February, attracting hundreds of applicants. Aptos, run by a team that previously worked on Meta’s Diem blockchain, has also partnered with Alibaba’s cloud computing arm to lure Chinese developers.

Some foreign founders have taken a step further by establishing a physical presence in the city. ZkMe, founded by a German entrepreneur to enable private credential verifications, chose to locate its headquarters in Hong Kong.

“We came here to build a sustainable business and take advantage of the tech expertise here, and then obviously, the cooperation with the Greater Bay Area is also really beneficial,” said zkMe’s founder and CEO, Alex Scheer, referring to the initiative that aims to integrate Hong Kong with nine adjacent Chinese cities through policies like tax benefits for Hong Kong firms to set up in Shenzhen. Of zkMe’s team of 16 members, 14 are based out of its Shenzhen office.

Some founders are more optimistic about Hong Kong paving the path for China to embrace crypto in the future. Anurag Arjun, founder of Dubai-based Avail, a modular blockchain company, believes governments that see the full benefits of crypto technologies will eventually adopt a more accommodating position.

“[The crypto industry has] been building very advanced technology over the last few years. Some examples are things like zero-knowledge proof technology,” he said, suggesting that the underlying technology behind cryptocurrency was developed not to support fraudulent NFTs or speculative trading, but to enhance the foundational tech of the industry.

“Due to the strategic nature of Hong Kong, we feel that it is an important place — a gateway to China in the future,” said Arjun. “If China opens up in the future — and once we talk to more government officials and make our case for the technology not only for the currency elements of it — what we do in Hong Kong will be a useful lesson to also expand to China.”

As the US cracks down on crypto, Hong Kong extends a warm welcome


Software Development in Sri Lanka

Robotic Automations

Chilean instant payments API startup Fintoc raises $7 million to turn Mexico into its main market | TechCrunch

April 25, 2024 10:12 PM0


Open banking may be a global trend, but implementation is fragmented. The fintech startups doing the legwork to make it a reality in smaller markets could become M&A targets for incumbents like Visa.

One of these is Y Combinator alum Fintoc, a B2B fintech startup that has raised a $7 million Series A round of funding to consolidate its presence in its home country, Chile, and in Mexico, where it expanded one year ago.

Fintoc’s product is an API that lets online businesses accept instant payments coming directly from the customer’s bank account. Known as accounts to accounts, or A2A, this method offers an alternative to credit card transactions, with fewer intermediaries.

For end users, A2A can be as frictionless as an online credit card payment. Instead of entering card details, they can just pick their bank and securely facilitate their bank credentials. But the main selling point is to businesses, which pay a lower commission than the usual credit card transaction fees.

Many countries now facilitate A2A, which has created tailwinds for open banking companies such as Plaid, Visa-owned Tink, TrueLayer and Volt. More generalist fintech players like Adyen and Stripe have also closed partnerships to offer A2A payments to their customers.

Latin America, however, isn’t particularly easy to enter for global players, nor very attractive. It is highly fragmented, and many countries still lag behind in financial inclusion: Fewer than half of Mexican adults have a bank account, according to World Development Indicators.

Mexico’s low banking penetration is a problem, but also an opportunity for Fintoc, CEO Cristóbal Griffero told TechCrunch. He expects neobanks to address the issue, but it will take time. “If we are there right before this boom, we’ll be able to grow with the market.”

Fintoc’s home market was less challenging in some ways. This helped it get quite significant traction: “In 2023, 1,807,000 people paid products, services and bills using Fintoc. This is approximately 13% of Chile’s population,” content manager Pedro Casale wrote in an email. Fintoc says it is used by more than 1.2 million people monthly in Chile.

These numbers are even more impressive considering that Fintoc faces competition from other players such as ETpay and Khipu. But its large clients mean that it is tied to frequent use cases such as topping up public transportation cards, making e-commerce purchases, covering bills and paying credit installments.

Chile’s population size, however, puts a ceiling on Fintoc’s potential growth, Griffero said. “You have the limit that we are 20 million inhabitants, so after a certain amount of revenue, it is very difficult to reach $100 million in ARR. It gets very complicated and you have to go out.”

The necessity to expand applies to any Chilean fintech. But Fintoc’s roadmap also reflects that the market has considerably changed compared to 2021.

Toned-down expansion

When Griffero and co-founder Lukas Zorich joined Y Combinator’s winter 2021 batch, their pitch was pretty straightforward: They were building “Plaid for LatAm.” That’s no longer the case; Plaid’s model was too advanced for the region, and the idea to launch all across the region was too ambitious.

VCs, too, have come to the same conclusion, as Fintoc learned during its fundraising process, Griffero said.

“I believe that the funds are still here, only that their thesis has changed a little. Now you have to explain very well why [you’d go into] each country. Saying “I am X for LatAm” is no longer something appealing to investors, especially those in San Francisco, because Latin America is super fragmented and suddenly it doesn’t make sense to be in every country. So maybe it’s Mexico, Chile and one other country, not Brazil or not Colombia; not “we are going to do all of Latin America because we are close.”

This more measured approach doesn’t warrant mega-rounds. “In 2021 this round would probably have been five times larger,” Griffero said. But maybe that’s for the best; TechCrunch followed more than one unicorn having to scale back on its pan-LatAm expansion and lay off staffers as a result.

Food delivery company JOKR confirms closing of Santiago, Medellin operations

Fintoc expects a lot from its Mexican expansion. “Mexico is the market we will most care about in the next two years and we expect it will represent the bulk of Fintoc’s revenue within the next two years,” Griffol said. But the startup is taking it step by step: Out of its team of 48 employees, only five are based in Mexico. Zorich moved there last year, but Griffol might not do so until next year.

With more onerous plans, Fintoc’s Series A round may not have happened at all. In the first quarter of the year, fintech funding slowed to its lowest level since 2017, CB Insights reported. In Latin America, it’s when compared to Q2 2021 that the drop is most blatant: Fintech startups from the region collectively raised $6 billion across 94 deals then, compared to only $0.4 billion last quarter.

Funding LatAm fintech is less en vogue than three years ago. But for VCs willing to wait, the rise of open banking across the region could eventually result in interesting M&As. Not just in Brazil, where Visa shelled out $1 billion for Pismo, a payments infrastructure that will give it access to Pix, the country’s ubiquitous instant payment system. In Mexico, too: In 2021, Mastercard acquired fintech startup Arcus, whose co-founder Iñigo Rumayor participated in Fintoc’s Series A round.

Fintoc’s main investors also have connections to its target market. Brazilian fund Monashees, which previously participated in Fintoc’s seed round and has now made a follow-on investment, has an office there. And its Series A lead, Propel, is based in the U.S., but was able to facilitate introductions to Mexican banks, an important step for the startup’s expansion.

“The closer we get to the payment rails, the better payment experience we can offer,” Griffero said in a statement.

Fintech funding slows to the lowest level since 2017

On the client side, Fintoc is targeting Mexican businesses that accept offline payment methods such as cash payments and post-pay methods, where customers must visit a physical location to complete their transaction. This makes A2A a pretty clear upgrade; but eventually, Griffero hopes it will also replace debit cards, and later on, offer a solid alternative to credit cards.

Mastercard and Visa will clearly face more competition as instant payments become commonplace with systems such as Pix in Brazil, but also UPI and India and FedNow in the U.S. A recent Bain & Company report estimates that 90% of today’s payments revenue could “migrate to software vendors, major technology firms, and other contenders.” This explains some of their past acquisitions, and we wouldn’t be surprised if others followed.


Software Development in Sri Lanka

Robotic Automations

Edonia grabs €2M to turn microalgae into less bitter-tasting ground meat alternative | TechCrunch

April 25, 2024 11:42 AM0


As the world’s population continues to grow, the need to be able to feed everyone is something a number of entities are working on. Paris-based Edonia, is one of the startups working on creating protein ingredients using microalgae.

Edonia joins companies like Bevel, AlgaeCore Technologies, Algenuity and NewFish that are all tapping into the global market for commercial algae expected to be valued at $25.4 billion by 2033.

Now armed with €2 million ($2.1 million), the company is moving forward with producing plant-based ingredients from microalgae biomass generated from spirulina or chlorella that Valentin claims is more nutritious than meat, Edonia CEO Hugo Valentin told TechCrunch.

Edonia is Valentin’s second company. He was also co-founder of Ammi, a company that was also working on spirulina consumption. Prior to that he was an account director for consulting firm Uzik. He said while at Ammi he was convinced that mycology (the study of fungi) would play an important role in the current protein transition.

Edonia makes the protein via a unique microalgae transformation process called “edonization.” This transforms the microalgae biomass into a textured super ingredient with numerous taste, odor, texture, nutritional and environmental qualities.

“We want to solve the organoleptic (sense organs) aspects of mycology,” Valentin said. “Today, it’s mainly known as a green powder with a bitter taste. The goal of the technologies is to solve this problem.”

Brevel sprouts $18.5M to develop microalgae-based alternative proteins

How edonization works

The edonization technique changes the color from green to a darker richer-looking brown. It converts the texture to “meaty-like tender grains” with aromatics similar to one that smoking or grilling would produce, Valentin said.

Edonia’s microalgae product replaces ground meat, like meatballs. (Image credit: Lilie Bedos + Edonia)

Edo-1 is the startup’s first product, which Valentin said offered an umami-like flavor and texture closer to ground meat than that of soy proteins. Therefore, it’s a good plant-based replacement for ground meat, he said.

In addition, the minimally processed Edo-1 is 30% protein, comprised of essential amino acids, and contains other minerals and vitamins. That’s a bit higher percentage of protein than, for instance, ground beef, which can be around 20% (a large percentage of beef is water).

At a time when 34% of greenhouse gas emissions are generated by our food, Valentin also wanted to show that microalgae could reduce emissions. Edonia worked with university institution AgroParisTech to develop a Life Cycle Assessment that shows Edonia’s product could emit 40 times less carbon dioxide than its ground meat equivalent, and three times less than its textured soy equivalent.

Scaling up

Edonia is already able to produce a few kilograms of Edo-1. Valentin’s next goal is to scale the technology so it can deliver thousands of tons of the product to the market. Valentin expects to have a full-scale factory in about two years.

The company is also working with food manufacturer beta testers to develope recipes and food products using Edonia’s ingredients.

“We plan to go to the market by the end of this year with commercial proofs of concepts,” he said.

Edonia isn’t subject to the “Novel Food” category regulations, so it does not need French or European Union authorization to go to market. This will enable it to commercialize its production more rapidly. The official launch will be European, and then the startup aims to quickly expand to other continents, like Asia and the United States, through strategic partnerships, Valentin said.

Getting Edo-1 on the plate

The €2 million investment was led by French venture capital firm Asterion Ventures, which recently invested in another “green” company Diamfab. BPI also participated. The capital will enable the company to finance a pilot plant and extend its R&D, Valentin said.

The quality of Edonia’s product has already been tested and approved by French R&D chef Laurent Sicre, whose culinary creation and development expertise is recognized by food industry professionals and restaurateurs.

In addition to meat alternatives, Valentin said Edo-1 can improve nutrition for other products, including bread, cakes, cream and cereal bars, without impairing the eating experience.

Edonia is now setting up its industrial demonstrator and Valentin expects to be able to execute at an industrial scale beginning this summer. The next step is to secure additional letters of intent for food makers to go to market with a product containing Edo-1.

Is ocean conservation the next climate tech? 7 investors explain why they’re all in


Software Development in Sri Lanka

Robotic Automations

CleanFiber wants to turn millions of tons of cardboard boxes into insulation | TechCrunch

April 13, 2024 11:49 AM0


For decades, building material companies have shredded old newspapers to create cellulose insulation. But as newspapers have declined, the cellulose insulation industry has found itself in a bind, chasing after dwindling supplies of raw material.

As old newsprint has become harder to find, there’s been another paper-based product on the rise: corrugated cardboard. People have increasingly turned to e-commerce, and the amount of cardboard boxes has crept steadily upward. Every year, as much as 50 million tons of the material land in waste and recycling bins.

Cardboard would seem like a perfect, paper-based solution to the insulation industry’s short supply, except there’s one problem: Corrugated boxes are riddled with contaminants like plastic tape, shipping labels and even metal staples. Transforming it into insulation is far more challenging than newsprint ever was. Yet one startup, CleanFiber, anticipated the shift and has been working on the problem for years.

To date, CleanFiber has been able to produce enough insulation for about 20,000 single-family homes. But CEO Jonathan Strimling knew that the company would have to stretch beyond its initial factory in Buffalo, New York, if it were to become more than an afterthought. The insulation market in the U.S. is dominated by a handful of large players and is worth $12.5 billion, according to Grand View Research.

Strimling also knew that he and his team would need more capital to expand. They last raised a $10 million Series A in 2022 using a creative mix of equity and debt to get the Buffalo plant running at full steam. But a nationwide expansion would require a much larger war chest.

Transforming old cardboard boxes into insulation nets CleanFiber $10 million round

Fortunately, the company had been courting Spring Lane Capital, a sustainability-focused private equity firm, for over a decade. The firm had been watching CleanFiber’s progress and, happy with the numbers the startup was posting, decided to lead a $28 million Series B that also included a $31.5 million project financing facility, TechCrunch has exclusively learned. Spring Lane was joined by Ahlström Invest, AXA Investment Managers, Climate Innovation Capital and Tokyu Construction/Global Brain.

“It puts us in a very, very strong position to roll out nationally,” Strimling told TechCrunch.

Using an entirely new process to transform a different feedstock into a drop-in replacement for existing cellulose insulation was one challenge the company faced when developing its product. It couldn’t cost any more, and it had to perform as well or better for the installers who deal with it on a daily basis.

CleanFiber has been selling its bales at market prices while refining its production process. Strimling didn’t disclose whether the company is making the product profitably yet, but he did say that CleanFiber has been able to “bring the marginal cost of production down a very, very significant curve.”

With a first-of-its-kind plant built and operational, CleanFiber has been able to traverse one of the most treacherous parts of the valley of death that often claims startups trying to commercialize a new technology. Building new additional factories won’t be a walk in the park, but it should get easier with each subsequent one. Plus, Strimling points out that more stringent building codes mean that new homes require more insulation than ever before. In other words, CleanFiber doesn’t need established players to lose for it to win.


Software Development in Sri Lanka

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