The once-celebrated narrative of Web3—hailed as the next evolution of the internet—appears to be undergoing a dramatic transformation. What began as a global frenzy driven by venture capital, speculative enthusiasm, and promises of decentralized freedom has given way to regulatory crackdowns, mass layoffs, and eroding investor confidence—particularly in Western markets. Yet, amid this downturn, a new chapter is quietly unfolding in Asia, with China and Hong Kong charting a distinct, compliance-first path forward.
This article explores the contrasting trajectories of Web3: its turbulent retreat in the West and its strategic resurgence in the East.
The 2022–2023 Rollercoaster: From Boom to Bust
Web3 entered 2022 on a high note. Fueled by bullish crypto markets and widespread institutional interest, the ecosystem attracted unprecedented levels of investment. According to Messari, there were 1,769 publicly disclosed Web3 VC investments in 2022—a 30% year-on-year increase. Giants like a16z and Paradigm launched multi-billion-dollar funds, while traditional financial heavyweights such as Sequoia Capital, Goldman Sachs, and Hillhouse Capital rushed to stake their claims.
By mid-2022, over 900 cryptocurrency funds operated across 80+ countries, managing an estimated $69.2 billion in assets. In just the first half of the year, Web3 investments surpassed $30 billion—up more than 50% from the previous year—with 107 new funds raising nearly $40 billion.
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But the momentum didn’t last.
As the Federal Reserve began aggressive rate hikes to combat inflation, liquidity dried up across financial markets—including crypto. The collapse of Terra (LUNA) in May 2022 marked the beginning of a chain reaction. Three Arrows Capital imploded shortly after, followed by the spectacular downfall of FTX in November.
FTX’s bankruptcy sent shockwaves through the industry. Once seen as a bridge between traditional finance and crypto, FTX’s implosion—driven by misused customer funds and unsustainable leverage—shattered trust. Creditors included global institutions like Goldman Sachs, JPMorgan, and even tech giants such as Apple and Netflix.
The fallout was immediate. Investor sentiment turned bearish. Funding dropped sharply: November 2022 saw an 80% year-on-year decline in investment volume, while December recorded only 57 deals—down 15% month-on-month—with average funding per deal falling to $49 million.
Regulatory Crackdown: The New Normal in the West
In the wake of FTX’s collapse, regulators worldwide intensified scrutiny over the largely unregulated Web3 space.
The United States took center stage. In January 2023, U.S. financial agencies issued a joint statement warning banks against exposure to crypto risks. The White House published a roadmap urging Congress to strengthen oversight, emphasizing that legislation should not enable unfettered access for mainstream institutions.
The Securities and Exchange Commission (SEC) became increasingly active:
- Kraken settled with the SEC in February 2023, agreeing to shut down its staking service in the U.S. and pay $30 million.
- Paxos, issuer of Binance’s BUSD stablecoin, received a Wells Notice indicating potential legal action over unregistered securities.
These actions signaled a clear shift: Web3 could no longer operate in regulatory gray zones. The era of unchecked innovation was ending.
Other jurisdictions followed suit. Singapore, once considered a crypto haven, adopted a more cautious stance under MAS Managing Director Ravi Menon, who warned against speculative excesses.
While stricter regulation may deter short-term speculation, it also lays the groundwork for long-term legitimacy. Compliance is no longer optional—it’s a prerequisite for institutional adoption.
The Human Cost: Web3’s Employment Crisis
As revenues declined and uncertainty grew, companies across the Web3 ecosystem resorted to cost-cutting measures.
According to CoinGecko, 2,806 employees were laid off in January 2023 alone, with centralized exchanges accounting for 84% of job losses. Major platforms like Coinbase, Huobi, Crypto.com, and Blockchain.com all implemented significant workforce reductions.
Even before FTX’s collapse, signs were evident:
- Coinbase cut remote roles in October 2022.
- Crypto.com slashed 20–40% of its workforce—around 2,000 people.
The trend continued into early 2023, with layoffs at firms like market maker GSR, NFT marketplace Magic Eden, and crypto media outlet The Block.
Workers shared mixed emotions:
“I left a big tech firm for double the salary,” said Alex, a former NFT platform operator. “Less than a year later, I was let go. This industry feels unstable.”
“I quit my teaching job dreaming of financial freedom,” recalled Ann, a former educator turned Web3 professional. “After FTX fell, I realized the dream was over.”
Yet not all are pessimistic:
“This is just a seasonal winter,” said a 20-year-old ex-exchange employee. “Data ownership and digital assets are inevitable. Opportunities still exist.”
Recruiters confirm shifting dynamics: demand for technical and quantitative roles remains strong, while marketing and operations roles are rebounding—especially in smaller exchanges exploring new markets.
China’s Alternative Path: Building Web3 on Compliance
While Western Web3 grappled with collapse and regulation, China pursued a divergent strategy—one rooted in control, compliance, and state-backed innovation.
After banning cryptocurrency trading and mining in 2021, China redirected blockchain development toward enterprise applications and digital asset tokenization within regulated frameworks.
Key developments include:
- The release of "Data Twenty Articles", establishing foundational rules for data rights and valuation.
Emergence of state-affiliated digital asset platforms:
- Greater Bay Area Digital Cultural Asset Exchange
- Anhui’s “Guoban Youcang”
- China Digital Asset Trading Platform (permitting compliant secondary transfers)
Simultaneously, Hong Kong emerged as a strategic gateway.
Following its Policy Statement on Development of Virtual Assets in late 2022, Hong Kong advanced pro-crypto reforms:
- Implemented a licensing regime for virtual asset trading platforms (effective June 2023).
- Issued licenses to two major exchanges.
- Launched three spot Bitcoin and Ethereum ETFs.
- Successfully tokenized an $800 million green bond under its government green finance initiative.
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In February 2023, the Securities and Futures Commission (SFC) proposed allowing retail investors to trade large-cap tokens on licensed platforms—subject to knowledge tests and risk assessments.
This dual-track model is clear: Mainland China focuses on industrial blockchain and data sovereignty; Hong Kong handles financialization and global integration.
Market Reaction: The Rise of “China-Linked” Web3 Projects
The contrast between Western crackdowns and Hong Kong’s openness hasn’t gone unnoticed.
Rumors that Hong Kong would fully legalize crypto trading for residents by June 1, 2025 sparked a rally in Chinese-linked projects:
- Cocos-BCX: +200% in one week
- Conflux: +215% in seven days
Though speculative, the surge reflects growing market confidence in regulated, institutionally supported Web3 ecosystems—particularly those aligned with clear policy direction.
Frequently Asked Questions (FAQ)
Q: Is Web3 dead?
A: No—but it’s evolving. The speculative bubble has burst, but foundational technologies like blockchain, smart contracts, and digital identity remain relevant. The focus is shifting from hype to real-world utility and regulatory compliance.
Q: Why did so many Web3 companies lay off staff?
A: Declining market conditions reduced revenue from trading fees, staking services, and NFT sales. With fundraising harder due to investor caution post-FTX, cost-cutting became necessary for survival.
Q: Can Web3 thrive without decentralization?
A: It already is—in different forms. While Western models emphasize decentralization, China’s approach prioritizes regulated efficiency. Both paths may coexist: one for financial innovation (e.g., Hong Kong), another for enterprise use (e.g., mainland blockchain).
Q: What makes Hong Kong’s Web3 strategy different?
A: Unlike unrestricted models, Hong Kong combines openness with strict oversight—requiring exchange licenses, investor protections, and alignment with national financial stability goals. This balance attracts institutions wary of unregulated markets.
Q: Are Chinese Web3 projects safe investments?
A: They operate under unique conditions. While they avoid direct token issuance (due to mainland restrictions), they benefit from government-backed infrastructure and policy support—offering lower volatility but potentially slower growth.
Q: Will regulation kill innovation in Web3?
A: Not necessarily. Regulation often redirects innovation rather than stops it. As seen in Hong Kong and Singapore, clear rules can foster sustainable development by attracting institutional capital and reducing systemic risk.
Final Thoughts: A Tale of Two Web3s
Web3 is not disappearing—it’s fragmenting.
In the West, the dream of a fully decentralized internet faces headwinds from regulators demanding accountability. In Asia, particularly through Hong Kong’s measured openness and China’s controlled experimentation, a new model is emerging—one where innovation proceeds within guardrails.
The future may not belong to one single vision of Web3, but to multiple parallel ecosystems—each shaped by its regulatory environment, cultural context, and economic priorities.
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As capital shifts toward AI and other emerging narratives, Web3 must prove it offers more than hype. Its survival depends not on evasion or idealism—but on building trustworthy systems that serve users, institutions, and societies alike.
The era of wild west experimentation may be over. But the journey toward meaningful digital transformation has only just begun.