France is taking a big swing at becoming Europe’s crypto hub. Can it succeed?

In 1808, Napoleon Bonaparte oversaw the construction of the Palais Brongniart, France’s first centralized stock exchange. Operating until 1998, it was, at the time, considered an emblem of the French empire’s financial might. 

Last week, it served as the venue for Paris Blockchain Week Summit (PBWS) and its NFT Day counterpart, a conference that showcased an industry aiming to upend the old financial order. 

With the exception of the more laissez-faire NFT Day, the conference focused heavily on regulation and institutional uptake of digital assets. Much of it seemed orchestrated to add weight not only to the idea that crypto is the future of finance — but also that France will be its center in Europe.

France loves crypto?

Unsurprisingly, the summit was not without its hiccups. On NFT Day, a man holding a fake rifle walked into the media room. 

That incident later turned out to be a marketing ploy from the Metaverse Weapons Factory stand, promoting NFT weapons that can be used in metaverses such as Decentraland. This would be poor taste at the best of times, let alone while coinciding with a New York subway shooting on the same day.

The following day kicked off with a keynote speech by Binance founder Changpeng Zhao. Yet as the world’s richest crypto founder began to speak, the tarpaulin behind him fell forward onto the on-stage logo for PBWS.

“Welcome to crypto,” he joked as the giant-sized letters tumbled, leaving only the P for Paris standing.

Once a team was able to resurrect the stage, Zhao was finally able to announce a $108 million investment into the French ecosystem and a partnership with the Paris-based startup incubator Station F.

This followed similarly Francophilic initiatives such as Frst Capital’s Le Crypto Fellowship with London’s Fabric Ventures, and the Tezos Foundation’s grant program, which has funded several France-based projects previously. 

“France is very uniquely positioned to be the leader in blockchain in Europe,” Zhao told the crowd, continuing his global charm offensive. “The government's attitude is phenomenal.” 

A tale of two cities

Conversations on the ground in Paris suggest he’s onto something. 

Ivan De Lastours, the crypto lead of Bpifrance, the French sovereign wealth fund, says there’s a legal framework in place in which French crypto firms can easily conduct business and claims this was the inspiration for the 2020 Markets in Crypto-assets Regulation EU ruling — a crypto regulatory framework expected to be adopted by all EU member states by 2024. 

“It’s pretty simple — you have a legal framework with accounting and tax rules so you can go to business,” he says. The French regulatory body counts 36 registered firms and unlike the UK doesn’t seem to have trouble retaining crypto startups. 

France is also able to lean on its strong reputation in the creative industries from gaming to film to fashion. The family behind Louis Vuitton Möet Hennessy (LVMH), for example, is setting up a web3 fund for their VC Aglaé Ventures. 

The minting of two crypto unicorns in Ledger and Sorare last year also helped distinguish France as an emerging hub. In total, the country’s blockchain startups raised $1.2 billion last year, according to Dealroom — in Europe, only the UK raised more. 

Bpifrance is among a growing number of sovereign wealth funds that have dipped their toes into crypto in recent years, after first handing Ledger a €1.4 million grant back in 2015. 

De Lastours says it is nearing a €50 million exposure to blockchain startups and aims to double this by the end of the year. This, of course, is a pittance compared to the mammoth sums being plowed into the sector by the sovereign wealth funds of Middle Eastern and Southeast Asian countries, but it’s a start.

Nicolas Debock, the managing director of French venture capital firm Eurazeo, which has invested in Sorare and lightning network startup Acinq, is similarly bullish about the space. 

“You have the combination of regular VC money, crypto-only VC funds, and a lot of entrepreneurs creating a virtuous circle,” he says. 

Eurazeo’s Debock does say, however, that the startup ecosystem in France has not matured to the point where its companies are becoming talent incubators for fresh batches of founders. 

The closest to this is the now-defunct Stratumn, a SaaS company that served as the springboard for Multis’s Sahaghian and Sorare’s founders Nicola Julia and Adrien Montfort — each of whom previously held senior positions at the company. 

“We have a very good dynamic in France right now… but in the UK, you have more [crypto] players and a bigger financial culture,” admits Bpifrance’s Delastours. “We are smaller than London — that’s a fact.” 

Mixed reviews

French funds are not the only ones to take notice of the local crypto scene. American VCs like a16z and Sequoia are also active in the country and “move faster” than their European counterparts, according to the CEO of the Sequoia-backed Multis, Thibaut Sahaghian. 

At a conference panel discussion on institutional investments in digital assets, Viktor Fischer of Rockaway Blockchain Fund outlined fears that US VCs might be the prime beneficiaries of the startup talent coming out of France.  

Both Sequoia and a16z have the flexibility of investing in startups via token sales. In Europe, limited partners — the backers of VC firms — are generally more hesitant to have crypto exposure.

Eurazeo’s Debock says that they are, along with many funds in Paris, working on a special raising vehicle to invest via token rounds. 

“It’ll mean building a separate special vehicle from scratch, figuring out custody and banking services to create a French solution,” he says, noting that many banks don’t want token exposure.“But you can be sure that one year from now, there’ll be a bunch of French VCs with special token vehicles.” 

Echoing Delastours, Debock points to the French government’s desire to foster an open environment for crypto, and adds that there are a number of high-level officials who are keenly aware of its potential. 

Not everyone in the industry has been as impressed with the government, though. Jonathan Schemoul of decentralized cloud storage platform Aleph.im says that while French regulators have good intentions for web3 organizations, the government has given the firm “zero help” in terms of grants with the company also having to pay a high rate of tax. 

Paul Frambot, the founder of Morpho, a startup that recently closed a round from big-name US investors, agreed, saying that in fact there aren’t many state-run initiatives. 

Instead, both Schemoul and Frambot credit organic communities — such as the student-run Kryptosphere and DeFi France, a crypto meetup led by the founder of the White Star Capital-backed protocol Paraswap — with helping spur the development of their businesses. 

Frambot recently went to the French finance ministry to give a talk on decentralized crypto projects. 

“They are listening and trying to understand what’s going on,” he says. “They don’t want to kill the industry — they know that Europe has been famous for killing tech industries and they don’t want to make the same mistakes again.” 

Everybody that The Block spoke to in Paris, however, cited a recently proposed rule by the EU parliament — which would prohibit transfers from regulated entities, like exchanges, to unidentified self-hosted wallets — as a looming obstacle for the French crypto sector. 

Most recently, The Block reported that the EU parliament approved provisions of the bill, which is now set to face trilogues from the European Commission and European Council. 

Representatives from the three institutions will negotiate an agreement or compromise on the bill during this time. This could take months and is the last chance to introduce changes. 

If the rule is enacted after this process “companies like Paraswap and Morpho will probably have to register in the US” says Multis’ Thibaut Sahaghian, adding that the already US-registered Multis would also likely shutter its French subsidiary in that case.

On the conference stage, the European Commission's team leader on digital finance Gundars Ostrovskis defended the union’s stance on crypto, saying that the EU remains in favor of promoting innovation in crypto. 

 “We’re not behind, we’re as reactive as possible,” he said during a panel on DeFi regulation. “It might be more challenging in the EU due to having many member states but we think we’re on track.”